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Intergenerational Politics, Government Debt and Economic Growth

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  • Tetsuo Ono

    (Graduate School of Economics, Osaka University)

Abstract

This paper develops a two-period overlapping-generations model featuring en- dogenous growth and intergenerational conflict over fiscal policy. In particular, the paper characterizes a Markov-perfect political equilibrium of the voting game be- tween generations, and shows the following results. First, in an unbalanced budget case, the government borrows or lends in the capital market depending on the share of capital in production. Second, when the government borrows in the capital mar- ket, an introduction of a balanced budget rule results in a higher growth rate. Third, to obtain a normative implication of the political equilibrium, the paper considers a benevolent planner with a commitment technology, and shows that the planner always chooses to lend in the capital market to save more for future generations and thus attains a higher growth rate than the government in a political equilibrium.

Suggested Citation

  • Tetsuo Ono, 2014. "Intergenerational Politics, Government Debt and Economic Growth," Discussion Papers in Economics and Business 14-23, Osaka University, Graduate School of Economics.
  • Handle: RePEc:osk:wpaper:1423
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    Cited by:

    1. Ono, Tetsuo, 2019. "Growth, Unemployment, And Fiscal Policy: A Political Economy Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3099-3139, December.
    2. Katagiri, Mitsuru & Konishi, Hideki & Ueda, Kozo, 2020. "Aging and deflation from a fiscal perspective," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 1-15.
    3. Arai, Real & Naito, Katsuyuki & Ono, Tetsuo, 2018. "Intergenerational policies, public debt, and economic growth: A politico-economic analysis," Journal of Public Economics, Elsevier, vol. 166(C), pages 39-52.

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    More about this item

    Keywords

    Economic Growth; Government Debt; Overlapping Generations; Pop- ulation Aging; Probabilistic Voting;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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