On the political economy of social security and public education |
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Authors: | Panu Poutvaara |
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Institution: | (1) Department of Economics, University of Helsinki, Arkadiankatu 7, P.O. Box 17, 00014 Helsinki, Finland |
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Abstract: | This paper analyzes simultaneous voting on the wage tax rate and investment in public education with three overlapping generations and ability differences inside each cohort. Wage tax revenue finances public education and social security benefits. The presence of ability differences introduces a time-consistency problem with repeated voting. This can be solved by trigger strategies, which do not punish upward deviations in the wage tax rate. If there are multiple equilibria, then higher tax rates are associated with more education. Surprisingly, the median voter may be a young citizen, even when cohorts are of the same size. |
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Keywords: | Social security Public education Voting |
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