This paper presents a theoretical median voter analysis of the determination of the level of social security. The framework for the analysis is a continuous-time overlapping-generations model with non-altruistic households facing borrowing constraints in the capital market. A majority voting equilibrium is shown to exist, in which the median voter is liquidity constrained. The desired level of social security for each voter is a declining function of the pre-existing level of social security. As a consequence, in a sequence of votes on social security beginning with a zero level, the program initially overshoots its steady state value.

David E. Wildasin / dew@davidwildasin.us