The Political Economy of Intergenerational Risk Sharing

25 Pages Posted: 17 Oct 2010

See all articles by David Hollanders

David Hollanders

Tilburg University - Tilburg University School of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2009

Abstract

This paper analyses the political constraints of intergenerational risk sharing. The first result is that the political process generally does not lead to ex ante optimal insurance. The second result is that in a second best political setting PAYG still contributes to intergenerational risk sharing. The third result is that aging increases the discrepancy between first-best and second-best transfers. The source of the inefficiency is that politicians redistribute to larger and easier swayed cohorts. Ex post redistribution to lower incomes still leads to an outcome that from an ex ante point of view is preferable to a situation without intergenerational transfers.

Keywords: risk sharing, aging, political economy

JEL Classification: D72, E61, H21, H55

Suggested Citation

Hollanders, David, The Political Economy of Intergenerational Risk Sharing (January 1, 2009). Netspar Discussion Paper No. 01/2009-011. Available at SSRN: https://ssrn.com/abstract=1692727 or http://dx.doi.org/10.2139/ssrn.1692727

David Hollanders (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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