Intergenerational redistribution with short-lived governments

Description:

We study the politics of intergenerational redistribution in an overlapping generations model with short-lived governments. The successive governmentsw̓ho care about the welfare of the currently living generations and possibly about campaign contributionsa̓re unable to pre-commit the future course of redistributive taxation. In a stationary politico-economic equilibrium, the tax rate in each period depends on the current value of the state variable and all expectations about future political outcomes are fulfilled. We find that there exist multiple stationary equilibria in many political settings. Steady-state welfare is often lower than it would be in the absence of redistributive politics.

subjects: Economic aspects,  Economic aspects of Intergenerational relations,  Inheritance and succession,  Intergenerational relations,  Political stability