Abstract
This paper explains public provision of social capital in an overlapping generations model with ‘gerontocracy’, without resort to any bequest motive. The old generation has an incentive to provide education and infrastructure because these goods shift the Laffer curve of social security taxation, thereby increasing old-age income in the political equilibrium. The incentive is stronger if population growth is larger. The marginal productivity of social capital in the political equilibrium may exceed or fall short of the marginal productivity of social capital in an efficient allocation.
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Comments by Ursula Arlt, Tom G. McCarthy, Wolfgang Peters, the participants in seminars at the Universities of Cologne and Dortmund and two anonymous referees are gratefully acknowledged. The usual caveat applies.
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Konrad, K.A. Social security and strategic inter-vivos transfers of social capital. J Popul Econ 8, 315–326 (1995). https://doi.org/10.1007/BF00185256
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DOI: https://doi.org/10.1007/BF00185256