The economic principles of pension provision

To examine pensions Samuelson's overlapping-generations model is generally used: its basic workings are set out here for an open economy. Pay-as-you-go (PAYGO) pensions are attractive when the rate of population growth exceeds the real rate of interest; then all generations are better off for the existence of the pension. The only cost is the income tax distortion. Once the rate of growth falls below the real interest rate, only the cost is left and it is better for the state to'fund'its pensions. If the state borrows to finance the transition to a funded system, it substitutes explicit debt for unfunded liabilities, which leaves its balance sheet unchanged; this avoids the problem of the existing young generation'paying twice'for its pensions.     

Intergenerational risk shifting through social security and bailout politics

This paper adopts a stochastic overlapping generations framework to analyze the allocation of aggregate financial risks under different social security systems and a majority voting rule. We study whether there will be switches between pay-as-you-go (PAYG) and fully funded (FF) systems in such an economy. We show that in case of a negative aggregate shock, low-income young individuals will form a political coalition with the elderly to implement a PAYG system. PAYG scheme is shown to persist even after a good aggregate shock if the system is redistributive enough.     

VOTING, INEQUALITY AND REDISTRIBUTION

Abstract.  This paper surveys models of voting on redistribution. Under reasonable assumptions, the baseline model produces an equilibrium with the extent of redistributive taxation chosen by the median income earner. If the median is poorer than average, redistribution is from rich to poor, and increasing inequality increases redistribution. However, under different assumptions about the economic environment, redistribution may not be simply rich to poor, and inequality need not increase redistribution. Several lines of argument are presented, in particular, political participation, public provision of private goods, public pensions, and tax avoidance or evasion.     

Can social security be welfare improving when there is demographic uncertainty?

This paper studies the welfare implications of a PAYG pension system in an overlapping generations (OLG) model with demographic uncertainty and incomplete markets. In the absence of public pensions, small cohorts tend to be favoured by the changes in relative prices implied by demographic shocks. PAYG defined-benefit systems can help to share the financial risks created by this type of demographic uncertainty across generations. Our careful quantitative analysis test this possibility with unfavourable results: the overall welfare impact of the public pensions is negative, due to the prominence of the crowding-out effect over the insurance effect.     

Sounding the alarm: Impact of political instability on growth and fiscal health of the Indian economy

A noticeable change evident in the Indian political scenario since the eighties has been a sharp rise in the frequency with which governments have been ousted out of power. This augurs well for Indian democracy as it reflects a ‘political awakening’. Such changes in government, after an election reflect ‘orderly’: transfer of power and are inherent to the democratic form of governance. However, a close scrutiny of the political scenario at the state government level shows that there have been very frequent changes in government between elections. A high frequency of changes in government could be expected to result in frequent reversals or modifications in policy decisions and have a destabilizing effect on the economy. The present study is an empirical exercise undertaken at the level of state governments. It makes a first attempt to examine the impact of political instability on growth and on the fiscal health of the Indian economy. Received: September 25, 2000/Accepted: January 11, 2002 RID="*" ID="*" Sincere thanks to Professors Ajit Karnik and Abhay Pethe for their comments and suggestions. I would also like to thank the two anonymous referees for their insightful comments and suggestions, which have been of great help. The usual disclaimer applies.     

Geographical Proximity and Mutual Funds' Proxy Voting Behavior

This paper examines the influence of geographical proximity on mutual fund proxy voting decisions. Using mutual fund proxy voting data for the sample period July 1, 2003 to June 30, 2004, we find that fund managers vote more in favor of management of locally headquartered firms. The results are strong for proposals related to executive compensation, anti‐takeover provisions, social and political issues. We provide evidence to show that bias in proxy voting is not being driven by informational advantage; voting bias is prevalent in small as well as large size companies. Additionally, the voting pattern suggests that geographical proximity does not facilitate in better corporate monitoring as revealed in their voting decisions. We find that local fund managers vote more favorably in those proposals which do not increase shareholders' wealth and rights. Our results suggest that familiarity and social interaction between fund managers and firm executives located in the same geographic area might explain the local bias in mutual fund proxy voting behavior. Copyright © 2011 John Wiley & Sons, Ltd.     

Elections and selection: The role of political ideology in selection decisions

Political ideology is a central belief that drives individuals' behavior not just in the voting booth but also in other aspects of life. As political divisiveness in society has increased, the ramifications of this shift may permeate organizations ultimately affecting how individuals interact with one another. Through the lens of social cognition and person-organization fit, this paper considers the effect of political ideology of job applicants in selection decisions by discussing 1) the definition of political ideology and subsequent stereotyping, 2) the increasing divisiveness rooted in political ideology, 3) the implication in selection decisions influenced by political ideology, and 4) the consequences for firm level diversity. Further, a model is provided to illustrate the relationship of political ideology to various phases of the selection process. Propositions to foster further study of these phenomena are provided within.     

Market models of local government: Exit,voting, and the land market

This paper explores linkages between exit, voting, and the land market that are central to the study of local politics. It raises new questions about the desirability of Tiebout-type governmental structures. Decentralized political and locational choice may not produce an equilibrium solution, and when an equilibrium does exist, the outcome will be dependent upon the historical accidents of community size. The effect of migration on public choices depends on the preferences and incomes of migrants, on the production function for public services, and on the price of land. Migration may lead to public choices that generate more migration in the same or the opposite direction.     

Why is there so little tax coordination? The role of majority voting and international tax evasion

It is a striking feature of EU tax policy that countries find it difficult to agree on capital tax coordination. This is in conflict with the prevailing theoretical view, according to which tax coordination is beneficial. This paper develops a political economy argument which may help to explain this puzzle. We consider a model of tax competition where fiscal policy decisions are taken via majority voting and tax evasion is possible but costly. It turns out that tax coordination agreements may fail to generate political support because middle income groups may lose from tax coordination, even if their capital income is below average.     

Wages, Welfare Benefits and Migration

Differences in economic opportunities give rise to strong migration incentives, across regions within countries, and across countries. In this paper we focus on responses to differences in welfare benefits across States. We apply the model developed in Kennan and Walker (2008), which emphasizes that migration decisions are often reversed, and that many alternative locations must be considered. We model individual decisions to migrate as a job search problem. A worker starts the life-cycle in some home location and must determine the optimal sequence of moves before settling down. The model is sparsely parameterized. We estimate the model using data from the National Longitudinal Survey of Youth (1979). Our main finding is that income differences do help explain the migration decisions of young welfare-eligible women, but large differences in benefit levels provide surprisingly weak migration incentives.     

Targeting and political support for welfare spending

This paper investigates the political support for social assistance policies in a model in which incomes are stochastic (so that welfare policies have an insurance benefit) and unequal ex ante (so that welfare policies have a redistributive effect). With self-interested voting, narrow targeting may so reduce the probability of receiving benefits for the majority that the majority prefers to eliminate benefits altogether, even though the cost of narrowly targeted benefits is close to zero. In contrast, a majority of self-interested voters always supports positive welfare benefits when the policy is targeted sufficiently broadly. If voters are somewhat altruistic, the impact of targeting on political support for welfare spending diminishes but does not disappear. Received: July 1999 / Accepted: May 30, 2000     

Co-voting democracy

We outline a new voting procedure for representative democracies. This procedure should be used for important decisions only and consists of two voting rounds: a randomly-selected subset of the citizens is awarded a one-time voting right. The parliament also votes, and the two decisions are weighted according to a pre-defined key. The final decision is implemented. As this procedure gives the society—represented by the randomly-chosen subset—a better say for important decisions, the citizens might be more willing to accept the consequences of these decisions.     

Must Governments Keep Bad Promises?

Governments can buy votes by mortgaging future tax revenue through promises of state pensions. The Thatcher Government's failure to rescind index-linked pensions for civil servants increases the potential tax burden on future generations. To buy today's votes with tomorrow's money is a promise government is not morally required to keep.     

What is the role of perceived leadership capacity in presidential politics?

The relevance of leadership models in presidential leadership, and principally the role of perceived leadership in presidential election years, is an area of study with limited development but increasing importance. This study explores the relationship between young voters' leadership assessment of presidential candidates, Barack Obama and John McCain, and their reports of voting behavior during the 2008 presidential election. Leadership perceptions were collected from 812 respondents prior to the election. Results indicate that candidate leadership assessments have a significant effect on candidate preference after controlling for the impact of party identification and self‐perceived political efficacy. Further, political efficacy significantly impacted respondents' intent to vote in the election after controlling for these same variables. Party affiliation produced significant differences across the political ideology, leadership ratings, political efficacy, and likelihood of voting variables. The study concludes with a discussion of the implications as they pertain to political leadership.     

Voting over selective immigration policies with immigration aversion

Selective immigration policies set lower barriers to entry for skilled workers. However, simple economic intuition suggests that skilled majorities should welcome unskilled immigrants and protect skilled natives. This paper studies the voting over a selective policy in a two-country, three-factor model with skilled and unskilled labor, endogenous migration decisions, costly border enforcement and aversion to immigration. Results show that heterogeneity in capital distribution forces skilled voters to form a coalition with unskilled voters, who become pivotal. The voting outcome is therefore biased towards the preferences of the latter, and consists in a selective protectionism. Finally, immigration aversion helps to explain why skilled majorities do not bring down entry barriers against unskilled workers.     

Social expenditure cyclicality: New time-varying evidence in developing economies

This paper provides a novel dataset of time-varying measures of cyclicality in social spending for an unbalanced panel of forty-five developing economies from 1982 to 2012. We focus on four categories of government social expenditure: health, social protection, pensions, and education. We find that in developing countries social spending has been acyclical over time, with the exception of spending on pensions. However, sample averages hide marked heterogeneity across countries, with many individually showing procyclical behavior in different social spending categories. The use of time-varying measures of social spending cyclicality overcomes the major limitation of previous studies in assessing the drivers of fiscal cyclicality that rely solely on cross-country regressions and, therefore, cannot account for country-specific as well as global factors. Using weighted least squares regressions, we find that the degree of social spending (pro)cyclicality is negatively associated with financial deepening, the level of economic development, trade openness, government size, and political constraints on the executive.     

The political economy of regional opting out: distributive implications of a prospective Europe of Regions

This paper builds up a model for analysing regional attitudes towards separation from national states, where separation implies `opting out' of the national income redistribution system and starting a regional one, while at the same time having direct access to supranational institutions. In an overlapping generations (OLG) framework, we show that interregional cooperation can perform the same task as intergenerational cooperation, and can prevent rich regions from wanting to separate from poor nations. In the second part of the paper, we estimate the impact of alternative institutional settings on regional welfare by using data on the inter-governmental financial relations of the Italian regions with the central government. June, 2001 / Accepted: May, 2002 RID="*" ID="*" We would like to thank Margherita Borella, Chris Flinn, Harold Hochman, Jeff Petchey, Stefano Piperno, Pierre Salmon, Bob Searle and seminar participants at Brescia, Torino, Paris (annual meeting of the European Public Choice Society 2001) and Marseille for comments and discussion. We would also like to thank the editor, Kai Konrad, and three referees for their helpful comments.     

Pensions Nightmare after 1999

Economists have long argued that the current state method of financing old-age pensions is a time-bomb that may blow up in the lap of future generations. Professor Norman Barry (right), of the University of Buckingham, welcomes the proposals in the Green Paper on welfare but argues that government must act much more rapidly to avoid burdening future Britons with the enormous dimensions of the pensions of the debt the American Government is building up fonts coming citizens.     

Pre-assigned rents and bureaucratic friction

In this paper we study the endogenous determination of bureaucratic friction in a bureaucratic contest with () and without (n = 1) rent contestability. When n= 1 bureaucratic impediments induce the individual to undertake rent-securing activities at the same level as in the two-player rent-seeking contest. However, under rent contestability the bureaucracy no longer serves as a means of extracting resources from the public. The paper concludes with the study of the effect of ‘net costs’ on bureaucratic friction. It turns out that under cotestability the only reason for creating bureaucratic friction is the ‘negative costs’ it incurs while when n = 1 the effect of the bureaucrat's net costs of generating bureaucratic friction on the optimal degree of such friction is ambiguous. Received: October 30, 2000 / Accepted: December 28, 2001 RID="*" ID="*" The authors are grateful to two anonymous referees for their valuable comments     

The political intergenerational welfare state

Using a three-period overlapping generations economy framework, we characterize an intergenerational welfare state with endogenous education and pension under voting. We show that although politically establishing Pay-As-You-Go (PAYG) social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected, in contrast politically implementing education-pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire. However for this the political influence of the old has to be small thus limiting the size of the PAYG social security program.