Abstract

We study a dynamic public capital accumulation model with infinitely-lived agents who follow the standard discounted utility model in their roles as consumers and voters. Saving policies are determined sequentially, period-by-period, by majority voting. When there is discounting heterogeneity, but no heterogeneity in consumption smoothing, a unique and Pareto-efficient recursive median-voter equilibrium exists. Although equilibrium need not always exist when agents are heterogeneous in both dimensions, we show its existence and Pareto-efficiency when agents' preferences are in the CES family.

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