Sustaining Social Security
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Overview: This research paper analyzes the sustainability of intergenerational transfers in politico-economic equilibrium. Embedding electoral competition for the votes of old and young households in the standard Diamond (1965) OLG model, researchers find that intergenerational transfers naturally arise in a Markov perfect equilibrium, even in the absence of altruism, commitment, or trigger strategies. Not internalizing the negative effects of transfers for future generations, the political process partially resolves the distributive conflict between old and young voters by shifting some of the cost of social security to the unborn.