Public Education and Pensions in Democracy: A Political Economic Theory

Author(s)
Francesco Lancia, Russo Alessia
Abstract

A dynamic political economy theory of fiscal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium reproduces salient features of intergenerational fiscal policies in modern economies.

Organisation(s)
Department of Economics
External organisation(s)
University of Oslo (UiO)
Journal
Journal of the European Economic Association
Volume
14
Pages
1038-1073
ISSN
1542-4766
DOI
https://doi.org/10.1111/jeea.12170
Publication date
10-2015
Peer reviewed
Yes
Austrian Fields of Science 2012
Political economy
Keywords
ASJC Scopus subject areas
Portal url
https://ucris.univie.ac.at/portal/en/publications/public-education-and-pensions-in-democracy-a-political-economic-theory(8a93296b-b893-407a-816f-ac1d3f2b23c1).html