Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 486: Intergenerational Redistribution, Health Care, and Politics

Douglas Lundin and María Sáez Martí ()
Additional contact information
Douglas Lundin: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
María Sáez Martí: The Research Institute of Industrial Economics, Postal: P.O. Box 5501, SE-114 85 Stockholm, Sweden

Abstract: Publicly provided health care implies considerable intergenerational redistribution. The possibility of accumulating a fund or debt will affect the degree of redistribution as well as how efficient the financing of health care is. In a voting model we study how governments inability to make binding long-term policy commitments will affect the accumulation of a fund or debt. Today's government will base its policy decisions on expectations about future governments behavior and simply follow suit, which results in strong political inertia. Either a fund or debt may therefore be upheld in political equilibrium. But no mechanism ensure that it is at its optimal level. If there is fund in steady state, the more political clout the old have the smaller will the fund be, i.e saving decrease. If there is debt, however, a politically stronger old generation may imply a smaller debt, i.e. savings increase.

Keywords: Voting; health expenditure; intergenerational transfers; dynamic politics

JEL-codes: D78; H55; I10

15 pages, January 7, 2002

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