This paper examines the choice of government expenditure on public goods and transfer payments, in the form of a pension, in an overlapping generations model. Government expenditure is tax-financed on a pay-asyou- go basis. A utilitarian judge chooses expenditures to maximize a social welfare...

Under a deadweight loss of tax and transfer, there is tension between the optimal policy choices of a Rawlsian social planner and a utilitarian social planner. However, when with a weight greater than a certain critical value the individuals’ utility functions incorporate distaste for low...