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Public capital, public pension, and growth

  • Noritaka Maebayashi


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    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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    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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    1. DOCQUIER, Frédéric & PADDISON, Oliver & PESTIEAU, Pierre, . "Optimal accumulation in an endogenous growth setting with human capital," CORE Discussion Papers RP 2021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. 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.
    3. 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).
    4. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 645-61, October.
    5. 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.
    6. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
    7. Kelvin R. Utendorf & Rowena A. Pecchenino, 1999. "Social security, social welfare and the aging population," Journal of Population Economics, Springer, vol. 12(4), pages 607-623.
    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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