We study the politics of intergenerational redistribution in an overlapping generations model with short-lived governments. The successive governments - who care about the welfare of the currently living generations and possibly about campaign contributions - are unable to precommit the future course of redistributive taxation. In a stationary politico-economic equilibrium, the intergenerational transfer 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 redistibutive politics.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics