The Single-Mindedness Theory: Micro-foundation and Applications to Social Security Systems

The central purpose of this paper is to introduce a new political economy approach which explains the characteristics of Social Security Systems. This approach is based on the Single-Mindedness Theory (SMT), which assumes that the more single-minded groups are able to exert a greater power of influence on Governments and eventually obtain what they ask. Governments are seen as voting-maximizer policy-makers, whose unique goal is winning elections. Using an OLG model and a probabilistic voting approach, I analyse a society divided into two groups, the old and the young, which only differ for their preferences for leisure. I show that, to win elections, the Government sets the optimal policy vector taking into account the preferences for leisure of both groups; eventually, the young gain a fiscal benefit, whilst the old have such an high marginal tax rate that they prefer to retire and spend all their time in leisure, a fraction of which is used in undertake political activities whose aim is the capture of politicians.