Creator: Chari, V. V., Jones, Larry E., and Marimon, Ramon, 1953- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 582 Abstract:
In U.S. elections, voters often vote for candidates from different parties for president and Congress. Voters also express dissatisfaction with the performance of Congress as a whole and satisfaction with their own representative. We develop a model of split-ticket voting in which government spending is financed by uniform taxes but the benefits from this spending are concentrated. While the model generates split-ticket voting, overall spending is too high only if the president’s powers are limited. Overall spending is too high in a parliamentary system, and our model can be used as the basis of an argument for term limits.
Subject (JEL): H40 - Publicly Provided Goods: General, H00 - Public Economics: General, and H30 - Fiscal Policies and Behavior of Economic Agents: General
Creator: Mehra, Rajnish, Piguillem, Facundo, and Prescott, Edward C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 655 Abstract:
There is a large amount of intermediated borrowing and lending between households. Some of it is intergenerational, but most is between older households. The average difference in borrowing and lending rates is over 2 percent. In this paper, we develop a model economy that displays these facts and matches not only the returns on assets but also their quantities. The heterogeneity giving rise to borrowing and lending and differences in equity holdings depends on differences in the strength of the bequest motive. In equilibrium, the lenders are annuity holders and the borrowers are those who have equity holdings, who live off its income when retired, and who leave a bequest. The borrowing rate and return on equity are the same in the absence of aggregate uncertainty. The divergence between borrowing and lending rates can thus give rise to an equity premium, even in a world without aggregate uncertainty.
Keyword: Government debt, Equity premium, Retirement, Aggregate intermediation, Life cycle savings, Borrowing, and Lending Subject (JEL): E44 - Financial Markets and the Macroeconomy, G23 - Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors, H62 - National Deficit; Surplus, G10 - General Financial Markets: General (includes Measurement and Data), E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), G11 - Portfolio Choice; Investment Decisions, D31 - Personal Income, Wealth, and Their Distributions, H00 - Public Economics: General, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, and E21 - Macroeconomics: Consumption; Saving; Wealth