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Intergenerational Politics, Government Debt, and Economic Growth

Listed author(s):
  • Tetsuo Ono

    ()

    (Graduate School of Economics, Osaka University)

This study presents a two-period overlapping-generations model featuring in- tergenerational conflict over fiscal policy. In particular, we characterize a Markov- perfect political equilibrium of the voting game between generations and show the following three main results. First, population aging incentivizes the government to invest more in capital for future public spending, positively affecting economic growth. Second, when the government finances its spending by issuing bonds, the introduction of the balanced budget rule results in a higher public spending-to-GDP ratio and a higher growth rate. Third, to obtain a normative implication of the po- litical equilibrium, we compare it with an allocation chosen by a benevolent planner who takes care of all future generations. The planner's allocation might feature less growth and more borrowing than the political equilibrium if the planner attaches low weights to future generations.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1423R2.pdf
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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 14-23-Rev.2.

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Length: 38 pages
Date of creation: Jun 2014
Date of revision: Jun 2015
Handle: RePEc:osk:wpaper:1423r2
Contact details of provider: Web page: http://www2.econ.osaka-u.ac.jp/library/global/e_HP/e_g_shiryo.html
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