Skip to main content
SpringerLink
Log in

Public education and social security: a political economy approach

  • Original Paper
  • Published:
Economics of Governance Aims and scope Submit manuscript

Abstract

This study presents an overlapping-generations model with altruism towards children. We characterize a Markov-perfect political equilibrium of voting over two policy issues, public education for the young and social security for the old. The model potentially generates two types of political equilibria, one favoring public education and the other favoring social security. One equilibrium is selected by the government to maximize its objective. It is shown that (i) longevity affects equilibrium selection and relevant policy choices; and (ii) private education as an alternative to public education and a Markov-perfect political equilibrium can generate the two types of equilibria.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. There are two aspects of population aging: an increase in longevity, which is basically out of the control of individuals, and a decline in fertility rates, which is the outcome of individual decision-making. The current study focuses on the former aspect to examine the effect of an exogenous change in the demographic structure on education and social security policies via voting.

  2. Given the assumption of identical individuals within a generation, we ignore intragenerational political conflict in the present study. Instead, we focus on the conflict between generations.

  3. This assumption is unusual in the literature, but it enables us to demonstrate the intergenerational conflict over the two policy issues (i.e., public education for the young and social security for the old) in a tractable manner.

  4. In general, private education serves as a substitute and a complement to public education (Glomm and Kaganovich 2003; Bearse et al. 2005). The latter role is not included in the present analysis.

  5. An explicit microfoundation for this model is explained in Persson and Tabellini (2000, Chapter 3) and Acemoglu and Robinson (2005, Appendix). Song et al. (2012, Appendix B) show the process of deriving the political objective function in an overlapping generations framework.

  6. The condition \(z_{t}>0\) becomes

    $$\begin{aligned} z_{t}>0\Leftrightarrow h_{t}>\left( \frac{1-\gamma }{p\theta \delta }+1\right) e_{t}+pb_{t}\Leftrightarrow 1>\frac{p(1-\theta )}{1+p\left( (1-\theta )+\delta \right) }. \end{aligned}$$

    The last inequality holds for any set of parameters.

  7. Using this direct calculation, we have

    $$\begin{aligned} V_{t,z>0}^{m}&\gtreqless V_{t,z=>0}^{m}\Leftrightarrow (1+p\delta )\ln \frac{1+p\delta }{1+p\theta \delta }+p\delta \ln \theta \gtreqless p\delta \ln (1-\gamma )\\&\Leftrightarrow \ln \left( \frac{1+p\delta }{1+p\theta \delta }\right) ^{(1+p\delta )}+\ln \left( \theta \right) ^{p\delta }\gtreqless \ln (1-\gamma )^{p\delta }\\&\Leftrightarrow \left( \frac{1+p\delta }{1+p\theta \delta }\right) ^{(1+p\delta )}\left( \theta \right) ^{p\delta }\gtreqless (1-\gamma )^{p\delta }\\&\Leftrightarrow \left( \frac{1+p\delta }{1+p\theta \delta }\right) ^{(1+p\delta )/p\delta }\theta \gtreqless 1-\gamma . \end{aligned}$$

    Using the definition of \(\phi (p)\) in the text, we obtain (9).

  8. An exception is Chile with a 42.1 % share. The share is 24.2 % in Canada, which can plausibly be included in the group of Anglo-Saxon countries.

References

  • Acemoglu D, Robinson J (2005) Economic origins of dictatorship and democracy. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Bassetto M (2008) Political economy of taxation in an overlapping-generations economy. Rev Econ Dyn 11:18–43

    Article  Google Scholar 

  • Bearse P, Glomm G, Janeba E (2001) Composition of government budget, non-single peakedness, and majority voting. J Public Econ Theory 3:471–481

    Article  Google Scholar 

  • Bearse P, Glomm G, Patterson DM (2005) Endogenous public expenditures on education. J Public Econ Theory 7:561–577

    Article  Google Scholar 

  • Bellettini G, Berti Ceroni C (1999) Is social security really bad for growth? Rev Econ Dyn 2:796–819

    Article  Google Scholar 

  • Bernasconi M, Profeta P (2012) Public education and redistribution when talents are mismatched. Eur Econ Rev 56:84–96

    Article  Google Scholar 

  • Bethencourt C, Galasso V (2008) Political complements in the welfare state: health care and social security. J Public Econ 92:609–632

    Article  Google Scholar 

  • Boldrin M (2005) Public education and capital accumulation. Res Econ 59:85–109

    Article  Google Scholar 

  • Cardak BA (2004) Education choice, endogenous growth and income distribution. Economica 71:57–81

    Article  Google Scholar 

  • Casey B, Oxley H, Whitehouse ER, Antolin P, Duval R, Leibfritz W (2003) Policies for an ageing society: recent measures and areas for further reform. OECD Economics Department Working Papers, No. 369, OECD Publishing. doi:10.1787/737005512385

  • Castello-Climent A, Domenech R (2008) Human capital inequality, life expectancy and economic growth. Econ J 118:653–677

    Article  Google Scholar 

  • Cattaneo MA, Wolter SC (2009) Are the elderly a threat to educational expenditures? Eur J Polit Econ 25:225–236

    Article  Google Scholar 

  • Conde-Ruiz JI, Galasso V (2005) Positive arithmetic of the welfare state. J Public Econ 89:933–955

    Article  Google Scholar 

  • Creedy J, Li SM, Moslehi S (2011) The composition of government expenditure: economic conditions and preferences. Econ Inq 49:94–107

    Article  Google Scholar 

  • Creedy J, Moslehi S (2009) Modelling the composition of government expenditure in democracies. Eur J Polit Econ 25:42–55

    Article  Google Scholar 

  • de la Croix D, Doepke M (2004) Public versus private education when differential fertility matters. J Dev Econ 73:607–629

    Article  Google Scholar 

  • de la Croix D, Doepke M (2009) To segregate or to integrate: education politics and democracy. Rev Econ Stud 76:597–628

    Article  Google Scholar 

  • Epple D, Romano ER (1996) Public provision of private goods. J Polit Econ 104:57–84

    Article  Google Scholar 

  • Fernandez R, Rogerson R (2001) The determinants of public education expenditures: long-run evidence from the states. J Educ Financ 27:567–583

    Google Scholar 

  • Glomm G (2004) Inequality, majority voting and the redistributive effects of public education funding. Pac Econ Rev 9:93–101

    Article  Google Scholar 

  • Glomm G, Kaganovich M (2003) Distributional effects of public education in an economy with public pensions. Int Econ Rev 44:917–937

    Article  Google Scholar 

  • Glomm G, Ravikumar B (1992) Public versus private investment in human capital: endogenous growth and income inequality. J Polit Econ 100:818–834

    Article  Google Scholar 

  • Glomm G, Ravikumar B (1995) Endogenous public policy and multiple equilibria. Eur J Polit Econ 11:653–662

    Article  Google Scholar 

  • Glomm G, Ravikumar B (1998) Opting out of publicly provided services: a majority voting result. Soc Choice Welf 15:187–199

    Article  Google Scholar 

  • Glomm G, Ravikumar B (2001) Human capital accumulation and endogenous public expenditures. Can J Econ 34:807–826

    Article  Google Scholar 

  • Gonzalez-Eiras M, Niepelt D (2008) The future of social security. J Monet Econ 55:197–218

    Article  Google Scholar 

  • Gonzalez-Eiras M, Niepelt D (2012) Aging, government budgets, retirement, and growth. Eur Econ Rev 56:97–115

    Article  Google Scholar 

  • Gradstein M, Justman M (1996) The political economy of mixed public and private schooling: a dynamic analysis. Int Tax Public Financ 3:297–310

    Article  Google Scholar 

  • Gradstein M, Justman M (1997) Democratic choice of an education system: implications for growth and income distribution. J Econ Growth 2:169–183

    Article  Google Scholar 

  • Gradstein M, Kaganovich M (2004) Aging population and education finance. J Public Econ 88:2469–2485

  • Grossman G, Helpman E (1998) Intergenerational redistribution with short-lived governments. Econ J 108:1299–1329

    Article  Google Scholar 

  • Harris AR, Evans WN, Schwab RM (2001) Education spending in an aging America. J Public Econ 81:449–472

    Article  Google Scholar 

  • Hassler J, Rodriguez Mora JV, Storesletten K, Zilibotti F (2003) The survival of the welfare state. Am Econ Rev 93:87–112

    Article  Google Scholar 

  • Hassler J, Krusell P, Storesletten K, Zilibotti F (2005) The dynamics of government. J Monet Econ 52:1331–1358

    Article  Google Scholar 

  • Hassler J, Storesletten K, Zilibotti F (2007) Democratic public good provision. J Econ Theory 133:127–151

  • Holtz-Eakin D, Lovely ME, Tosun MS (2004) Generational conflict, fiscal policy, and economic growth. J Macroecon 26:1–23

    Article  Google Scholar 

  • Hoyt WH, Lee K (1998) Educational vouchers, welfare effects, and voting. J Public Econ 69:211–228

    Article  Google Scholar 

  • Iturbe-Ormaetxe I, Valera G (2012) Social security reform and the support for public education. J Popul Econ 25:609–634

    Article  Google Scholar 

  • Kaganovich M, Meier V (2012) Social security systems, human capital, and growth in a small open economy. J Public Econ Theory 14:573–600

    Article  Google Scholar 

  • Kaganovich M, Zilcha I (2012) Pay-as-you-go or funded social security? A general equilibrium comparison. J Econ Dyn Control 36:455–467

    Article  Google Scholar 

  • Kemnitz A (2000) Social security, public education, and growth in a representative democracy. J Popul Econ 13:443–462

    Article  Google Scholar 

  • Konrad KA (1995) Social security and strategic inter-vivos transfers of social capital. J Popul Econ 8:315–326

    Article  Google Scholar 

  • Krusell P, Quadrini V, Rios-Rull J-V (1997) Politico-economic equilibrium and economic growth. J Econ Dyn Control 21:243–272

    Article  Google Scholar 

  • Kunze L (2014) Life expectancy and economic growth. J Macroecon 39:54–65

    Article  Google Scholar 

  • Lancia F, Russo A (2013) A dynamic politico-economic model of intergenerational contracts. http://econpapers.repec.org/paper/modrecent/050.htm

  • Levy G (2005) The politics of public provision of education. Q J Econ 120:1507–1534

    Article  Google Scholar 

  • Lindbeck AJ, Weibull W (1987) Balanced-budget redistribution as the outcome of political competition. Public Choice 52:273–297

    Article  Google Scholar 

  • Naito K (2012) Two-sided intergenerational transfer policy and economic development: a politico-economic approach. J Econ Dyn Control 36:1340–1348

    Article  Google Scholar 

  • OECD (2013) Education at a Glance 2013: OECD Indicators, OECD Publishing

  • Palivos T, Varvarigos D (2013) Intergenerational complementarities in education, endogenous public policy, and the relation between growth and volatility. J Public Econ Theory 15:249–272

    Article  Google Scholar 

  • Persson T, Tabellini G (2000) Political economics: explaining economic policy. MIT Press, Cambridge

  • Poterba JM (1997) Demographic structure and the political economy of public education. J Public Policy Manag 16:48–66

    Article  Google Scholar 

  • Poterba JM (1998) Demographic change, intergenerational linkages, and public education. Am Econ Rev 88:315–320

    Google Scholar 

  • Poutvaara P (2006) On the political economy of social security and public education. J Popul Econ 19:345–365

    Article  Google Scholar 

  • Rangel A (2003) Forward and backward intergenerational goods: why is social security good for the environment? Am Econ Rev 93:813–834

    Article  Google Scholar 

  • Razin A, Sadka E, Swagel P (2002) The aging population and the size of the welfare state. J Polit Econ 110:900–918

    Article  Google Scholar 

  • Saint-Paul G, Verdier T (1993) Education, democracy and growth. J Dev Econ 42:399–407

    Article  Google Scholar 

  • Soares J (2006) A dynamic general equilibrium analysis of the political economy of public education. J Popul Econ 19:367–389

    Article  Google Scholar 

  • Song Z (2011) The dynamics of inequality and social security in general equilibrium. Rev Econ Dyn 14:613–635

    Article  Google Scholar 

  • Song Z (2012) Persistent ideology and the determination of public policy over time. Int Econ Rev 53:175–202

    Article  Google Scholar 

  • Song Z, Storesletten K, Zilibotti F (2012) Rotten parents and disciplined children: a politico-economic theory of public expenditure and debt. Econometrica 80:2785–2803

    Article  Google Scholar 

  • Stiglitz JE (1974) The demand for education in public and private school systems. J Public Econ 3:349–385

  • Tosun MS (2008) Endogenous fiscal policy and capital market transmissions in the presence of demographic shocks. J Econ Dyn Control 32:2031–2060

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Graduate School of Economics, Osaka University, 1-7, Machikaneyama, Toyonaka, Osaka, 560-0043, Japan

    Tetsuo Ono

Authors
  1. Tetsuo Ono
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Tetsuo Ono.

Additional information

The author would like to thank the referee for useful comments and suggestions, and Yuki Uchida for his research assistance. This work was supported in part by a Grant-in-Aid for Scientific Research (C) from the Ministry of Education, Science, and Culture of Japan No. 24530346.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Ono, T. Public education and social security: a political economy approach. Econ Gov 16, 1–25 (2015). https://doi.org/10.1007/s10101-014-0149-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10101-014-0149-2

Keywords

JEL Classification

Search

Navigation