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讨论稿No. E2013001:THE POLITICAL INTERGENERATIONAL WELFARE STATE: A UNIFIED FRAMEWORK

发布日期:2013-05-29 11:35    来源:北京大学国家发展研究院

Monisankar Bishnu[*]      Min Wang[†]

 

 

 

No. E2013001    May 27, 2013

 

 

Abstract This paper characterizes an intergenerational welfare state with education and pension under probabilistic voting where voters internalize the general equilibrium effects materializing in their life-span. We show that as public education is introduced in the economy through the political process, it always increases (reduces) the accumulation of human capital (physical capital), but strikingly, has no effect on the political equilibrium of pay-as-you-go (PAYG) social security tax. In fact, contrary to the popular belief, it reduces the generosity of pension benefits and therefore the idea of using public education as a weapon to handle the present social security issue stumbles. On the other hand, the introduction of a politically determined PAYG social security most definitely reduces physical capital accumulation. However its impact on human capital accumulation depends on how the education investment is financed. We also demonstrate that the general equilibrium effects are crucial to sustain the social security program, and explain why the presence of PAYG social security may not provide sufficient incentive for either public or private investment in education. Finally, we show that the simultaneous arrangement of public education and pension can increase the long-run growth if and only if the relative political influence of the old is small so that the pension program is thin.

Keywords Education, Social security, Probabilistic voting, Markov Perfect Equilibrium, Endogenous growth

JEL Classification E6,H3, H55,D90

No.E2013001

 

[*] Indian Statistical Institute-Delhi. Address: Economics and Planning Unit, Indian Statistical Institute 7,S.J.S Sansanwal Marg, New Delhi 110 016, India. Email: mbishnu@isid.ac.in.

[†] Peking University, Beijing. Address: China Center for Economic Research, National School of Development, Peking University, Beijing 100871, China. Email: Wangmin@nsd.pku.edu.cn.