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Generational Conflict, Human Capital Accumulation, and Economic Growth

  • Douglas Holtz-Eakin
  • Mary E. Lovely
  • Mehmet S. Tosun

Worldwide, dependency ratios are forecast to increase dramatically in the next 50 years. A great deal of attention has been devoted to understanding the changes in fiscal policies that must' take place to accommodate these changes. In contrast, less effort has been concentrated on studying the fiscal shifts that will endogenously result from demographic pressures. An example of particular interest is the degree to which a more elderly population will support public spending for education. We use an overlapping-generations model to investigate the effect of this demographic transition on the endogenous determination of public spending for education. A demographic transition alters the identity of the median voter, leading to a preference for less education spending. If the public sector is inefficiently small, demographic transition exacerbates the underprovision of human capital. Alternatively, such a shift may trim an inefficiently large government, reduce tax rates and raise capital per worker enough to raise education spending. Thus, there is no automatic link between demographic transition and reduced support for those programs whose benefits are concentrated among the young.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7762.

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Date of creation: Jun 2000
Date of revision:
Publication status: Published as "Solow and States: Capital Accumulation, Productivity, and Economic Growth", National Tax Journal, Vol. 46, no. 4 (1993): 425-439.
Handle: RePEc:nbr:nberwo:7762
Note: PE
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  1. Guido Enrico Tabellini & Torsten Persson, 1991. "Growth, Distribution and Politics," IMF Working Papers 91/78, International Monetary Fund.
  2. Meijdam, Lex & Verbon, Harrie A A, 1996. "Aging and Political Decision Making on Public Pensions," Journal of Population Economics, Springer, vol. 9(2), pages 141-58, May.
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  4. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers 553, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
  6. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February.
  7. James M. Poterba, 1997. "Demographic structure and the political economy of public education," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
  8. Brueckner, Jan K, 1999. " Fiscal Federalism and Capital Accumulation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(2), pages 205-24.
  9. Wright, Randall, 1996. "Taxes, redistribution, and growth," Journal of Public Economics, Elsevier, vol. 62(3), pages 327-338, November.
  10. Coronado Julia Lynn & Fullerton Don & Glass Thomas, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, November.
  11. repec:fth:harver:1490 is not listed on IDEAS
  12. Holtz-Eakin, Douglas, 1993. "Demographics, Political Power and Economic Growth," Public Finance = Finances publiques, , vol. 48(Supplemen), pages 349-65.
  13. Glomm, Gerhard & Ravikumar, B., 1996. "Endogenous public policy and multiple equilibria," European Journal of Political Economy, Elsevier, vol. 11(4), pages 653-662, April.
  14. Bovenberg, A. Lans & van Ewijk, Casper, 1997. "Progressive taxes, equity, and human capital accumulation in an endogenous growth model with overlapping generations," Journal of Public Economics, Elsevier, vol. 64(2), pages 153-179, May.
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