This study introduces cash-in-advance constraints into an R&D-based model of endogenous growth in which agents' abilities to develop new goods are heterogeneous. We demonstrate that the negative e ect of in ation on long-term growth is weaker in the heterogeneous ability economy than in the homogeneous ability economy if the in ation rate is relatively low, whereas the opposite outcome holds in the high in ation regime. Our numerical examples show that the threshold level of in ation is about 20% per year, which ts well with the ndings of existing empirical studies of the nonlinear relation between in ation and growth.

This paper characterizes a stationary Markov-perfect political equilibrium where agents vote over income taxation that distorts educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the cost of a second chance. First, when the cost is low, the economy is characterized by high levels of upward mobility and inequality, and a low tax burden supported by the poor with prospects for upward mobility. Second, when the cost is high, there are multiple equilibria with various patterns of upward mobility, inequality and redistribution. Numerical examples show that the shift from a high-cost economy to a low-cost economy may reduce social welfare.

This study extends the multi-country, politico-economic model of fiscal policy to incorporate wage inequality within each country. In this extended framework, we present conflict over fiscal policy within and across generations and show that a low-inequality country realizes tight fiscal policy with low public debt accumulation, whereas a highinequality country experiences loose fiscal policy with high public debt. This model prediction is consistent with empirical evidence from OECD countries for the years 1980 to 2010. | IN TRO DUCT IO NConventional economic theory suggests that higher income inequality is associated with a higher level of income redistribution (see, e.g., Romer, 1975;Roberts, 1977;Meltzer & Richard, 1981). Given government budget constraints, higher inequality should increase pressure on politicians to shift the fiscal burden from the present generation to future generations. This pressure incentivizes politicians to finance a part of government expenditure by issuing public debt, which may result in a higher debt-togross domestic product (GDP) ratio in the long run.The purpose of this study is to develop a simple model that examines the aforementioned argument from a theoretical point of view. For this purpose, we use Song, Storesletten, and Zilibotti's (2012) multi-country politico-economic model of public debt. They present a two-period overlapping-generations' model with many small open countries that differ in their public goods' preferences. Each country decides its public goods' provision financed by taxes and public debt through probabilistic voting, reflecting the conflicting preferences of two successive generations. In this model, they show that public goods' preferences shape cross-country differences in fiscal policy.This study modifies their framework by assuming away differences in preferences among countries and instead introduces wage inequality within each country. In this alternative framework, we present conflict over fiscal policy within and across generations and show that when agents' elasticity of intertemporal substitution (EIS) is less than one, a low-inequality country realizes tight fiscal policy with low public debt accumulation, whereas a high-inequality country experiences loose fiscal policy with high public debt. The reverse occurs when EIS is greater than one: a higher inequality level is associated with a lower level of public debt.

In recent years, voter turnout has been decreasing in most industrial countries, and about 40% of all electors abstain from voting. This may affect income inequality and the GDP growth rate through a redistribution policy determined by majority voting. In this paper, we explore the reasons for this continuing decrease in voter turnout and assess its social costs. We conclude that informatization lowers voter turnout by generating an information overload, and that a decrease in voter turnout lowers GDP growth by limiting income redistribution.

This paper introduces a three‐income class, overlapping‐generations model with borrowing constraints. The labor income tax for financing pay‐as‐you‐go social security is determined in a majoritarian voting game played by successive generations. When the interest‐rate elasticity of consumption is low, the political equilibrium might be characterized by an equilibrium where the old and the middle‐income young individuals form a coalition in favor of a higher tax rate and greater social security, while the low‐ and the high‐income young individuals favor a lower tax rate and less social security. In this equilibrium, the size of social security is decreased by the mean‐preserving reduction of a decisive voter's wage if he/she is borrowing‐constrained.