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Population Aging, the Composition of Government Spending,and Endogenous Economic Growth in Politico-Economic Equilibrium

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  • Kuehnel, Johanna
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    Abstract

    This paper introduces a democratic voting process into an OLG economy in order to analyze the e ffects of a rising old-age dependency ratio on the composition of government spending and endogenous economic growth. Forward-looking agents vote each period on the public policy mix between productive government expenditure and public consumption spending that benefi ts the elderly. Population aging shifts political power from the young to the old. While this does not aff ect public productive expenditure, it leads to an increase in public spending on the elderly and a slowdown in economic growth. However, the overall e ffect on long-term economic growth is positive. This is due to reduced capital dilution or increased saving.

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    Bibliographic Info

    Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0510.

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    Date of creation: 17 Feb 2011
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    Handle: RePEc:awi:wpaper:0510

    Note: This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html
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    Related research

    Keywords: Demographics; Endogenous Economic Growth; Government Spending; Markov Perfect Equilibrium; Probabilistic Voting;

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    1. Gonzalez-Eiras, Martin & Niepelt, Dirk, 2007. "Population Ageing, Government Budgets, and Productivity Growth in Politico-Economic Equilibrium," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6581, C.E.P.R. Discussion Papers.
    2. Martin Gonzalez-Eiras & Dirk Niepelt, 2007. "The Future of Social Security," Working Papers 07.02, Swiss National Bank, Study Center Gerzensee.
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    Cited by:
    1. Libich, Jan & Nguyen, Dat & Stehlik, Petr, 2014. "Monetary Exit and Fiscal Spillovers," MPRA Paper 57266, University Library of Munich, Germany.

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