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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

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.

Suggested Citation

  • Kuehnel, Johanna, 2011. "Population Aging, the Composition of Government Spending,and Endogenous Economic Growth in Politico-Economic Equilibrium," Working Papers 0510, University of Heidelberg, Department of Economics.
  • Handle: RePEc:awi:wpaper:0510
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    References listed on IDEAS

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    1. Martín Gonzales-Eiras & Dirk Niepelt, 2007. "Population Ageing, Government Budgets, and Productivity Growth in Politico-Economic Equilibrium," Working Papers 07.05, Swiss National Bank, Study Center Gerzensee.
    2. Gonzalez-Eiras, Marti­n & Niepelt, Dirk, 2008. "The future of social security," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 197-218, March.
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    Cited by:

    1. Libich, Jan & Nguyen, Dat Thanh & Stehlík, Petr, 2015. "Monetary exit and fiscal spillovers," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 184-206.
    2. Tetsuo Ono, 2014. "Intergenerational Politics, Government Debt and Economic Growth," Discussion Papers in Economics and Business 14-23, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

    More about this item

    Keywords

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

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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