DP4044 Democratic Public Good Provision

Author(s): John Hassler , Kjetil Storesletten , Fabrizio Zilibotti

Publication Date: September 2003

Keyword(s): markov equilibrium , multiple equilibria , public good , political economy , ramsey allocation , taxation

JEL(s): D72 , D78 , E62 , H21 , H41 , H53

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP4044.asp

This Paper analyses an overlapping generation model of public good provision under repeated voting. The public good is financed through age-dependent taxation that distorts human capital investment. Taxes redistribute income both across different skill groups and across generations. We contrast the political equilibria with the Ramsey allocation, and analyse the sources of inefficiency. The political equilibria can feature both under- and over-provision of public good, as well an inefficient life-cycle profile of taxes.