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Public Investment and Golden Rule of Public Finance in an Overlapping Generations Model

Author

Listed:
  • Akira Kamiguchi

    (School of Economics, Hokusei Gakuen University)

  • Toshiki Tamai

    (Graduate School of Economics, Nagoya University)

Abstract

This paper develops an overlapping generations model with debt-financed public investment. The model assumes that the government is subject to the golden rule of public finance and that households are Yaari-Blanchard type. It is shown that the growth-maximizing and utility-maximizing tax rates do not satisfy the Barro tax rule, which is equal to the output elasticity of public capital. Furthermore, we show that both tax rates positively depend on longevity, with an aging population increasing debt per GDP. This result captures a tendency of increasing debt per GDP under population aging in the real world.

Suggested Citation

  • Akira Kamiguchi & Toshiki Tamai, 2017. "Public Investment and Golden Rule of Public Finance in an Overlapping Generations Model," KIER Working Papers 971, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:971
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    References listed on IDEAS

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    More about this item

    Keywords

    Public capital; Golden rule of public finance; Economic growth;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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