The Fiscal Politics of Big Governments: Do Coalitions Matter?

ECONOMICS FOR AN IMPERFECT WORLD: ESSAYS IN HONOR OF JOSEPH STIGLITZ, MIT Press, 2003

25 Pages Posted: 14 Oct 2009

See all articles by Costas Azariadis

Costas Azariadis

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Luisa Lambertini

Ecole Polytechnique Fédérale de Lausanne

Date Written: 2003

Abstract

This paper uses a closed voting rule to explain how gradual changes in the socio-economic structure of developed societies shift political coalitions and lead to rapid expansions of transfer programs. Equilibria in a lifecycle economy with three homogeneous groups of voters (retirees, skilled young workers, unskilled young workers) have three properties. One, if income inequality is sufficiently high, unskilled workers and retirees will form a dominant coalition which raises both intragenerational and intergenerational transfers. Two, when capital is abundant relative to labor, government transfers will be strictly intergenerational. Three, all transfers increase when the voting franchise is extended to less affluent individuals.

Keywords: Fiscal Policy, Government expenditures

JEL Classification: E6, H1, H5

Suggested Citation

Azariadis, Costas and Lambertini, Luisa, The Fiscal Politics of Big Governments: Do Coalitions Matter? (2003). ECONOMICS FOR AN IMPERFECT WORLD: ESSAYS IN HONOR OF JOSEPH STIGLITZ, MIT Press, 2003 . Available at SSRN: https://ssrn.com/abstract=1485324

Costas Azariadis

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Luisa Lambertini (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

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