Pension reserve fund,political budget cycles and fiscal illusion |
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| Affiliation: | 1. University of Magdeburg, Halle Institute for Economic Research, Germany;2. Halle Institute for Economic Research (IWH), Germany;3. University of Halle-Wittenberg, Halle Institute for Economic Research, Germany;1. School of Public Policy, George Mason University, 3351 N. Fairfax Drive, Arlington, VA 22201, USA;2. Department of Economics, Copenhagen Business School, Porcelaenshaven 16A, DK-2000 Frederiksberg, Denmark;3. Economics and Monetary Policy, Central Bank of Iceland, Kalkofnsvegur 1, 150 Reykjavik, Iceland;1. Universitat de les Illes Balears, Departament d''Economia Aplicada, Palma de Mallorca, 07122, Spain;2. University of Warwick, Department of Economics, Gibbet Hill Road, Coventry, CV4 7AL, UK;3. Western University, Department of Economics, London, Ontario, N6G 2V4, Canada;4. CESIfo, Germany;5. University of Birmingham, Department of Economics, Edgbaston, Birmingham, B15 2TT, UK;6. CEPR, UK;1. Department of Economics and Business Economics, Aarhus University, Denmark;2. PeRCent, CESifo, CEPR, IZA |
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| Abstract: | We model political manipulations of pension reserve funds in a modified Shi and Svensson (2006) political budget cycle (PBC) model. Assuming that a share of voters suffers from fiscal illusion the incumbent can increase her re-election chances by prematurely spending parts of the reserve fund. We also obtain results that are counterintuitive, but only at first sight. First, it can be shown that the incumbent wants to reduce the manipulation when her ego rent increases. Second, the optimal magnitude of manipulation does not necessarily go up when the share of voters suffering from fiscal illusion rises. |
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| Keywords: | Electioneering Fiscal policy Pensions Public goods Political economy |
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