Abstract
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 nonaltruistic 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 preexisting 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. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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