Discussion Paper

Political economy of taxation in an overlapping-generations economy

Abstract: This paper builds a simple but complete model of a political system to analyze the effects of intergenerational conflicts on capital and labor income tax rates, transfers, and government spending. I show how the different nature of tax liabilities for the young and the old can explain why the old receive large gross lump-sum transfers through social security, while the young receive little or none. I also show that there is a natural link between the size of the government as a provider of public goods and the magnitude of transfers that the same government will implement.

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Discussion Paper / Institute for Empirical Macroeconomics

Publication Date: 1999

Number: 133