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Public capital, public pension, and growth

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  • Noritaka Maebayashi

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    Abstract

    This paper constructs an endogenous growth model with overlapping generations, whose engine of economic growth is productive public capital. We investigate a public policy under which the government allocates tax revenue between investment in public capital accumulation and public pension provision. We show that increasing the share of spending on public pensions always reduces economic growth. However, we show numerically that public pension provision improves social welfare and there exists an optimal share of spending on public pension provision unless the value of the time discount factor of the government is sufficiently high. Moreover, we show that in an economy facing an aging population, an increase in social security provision for the old rather than an increase in public investment can be preferable from the viewpoint of social welfare. Copyright Springer Science+Business Media, LLC 2013

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    File URL: http://hdl.handle.net/10.1007/s10797-012-9216-1
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    Bibliographic Info

    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 20 (2013)
    Issue (Month): 1 (February)
    Pages: 89-104

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    Handle: RePEc:kap:itaxpf:v:20:y:2013:i:1:p:89-104

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    Web page: http://www.springerlink.com/link.asp?id=102915

    Related research

    Keywords: Public capital; Social security; Overlapping generations; E62; H54; H55;

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    References

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    1. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
    2. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
    3. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
    4. Pecchenino, R.A., 1994. "Social Security, Social Welfare and the Aging Population," Papers 9403, Michigan State - Econometrics and Economic Theory.
    5. Frederic, DOCQUIER & Oliver, Paddison & Pierre PESTIEAU, 2006. "Optimal accumulation in an endogenous growth setting with human capital," Discussion Papers (ECON - Département des Sciences Economiques) 2006022, Université catholique de Louvain, Département des Sciences Economiques.
    6. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
    7. Rowena A. Pecchenino & Patricia S. Pollard, 1995. "The effects of annuities, bequests, and aging in an overlapping generations model of endogenous growth," Working Papers 1995-008, Federal Reserve Bank of St. Louis.
    8. Akira Yakita, 2001. "Uncertain lifetime, fertility and social security," Journal of Population Economics, Springer, vol. 14(4), pages 635-640.
    9. Turnovsky, Stephen J., 1997. "Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 1(03), pages 615-639, September.
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    Cited by:
    1. Renuga Nagarajan & Aurora A.C. Teixeira & Sandra T. Silva, 2013. "The impact of population ageing on economic growth: an in-depth bibliometric analysis," FEP Working Papers 505, Universidade do Porto, Faculdade de Economia do Porto.

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