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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 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.

Suggested Citation

  • Tetsuo Ono, 2014. "Intergenerational Politics, Government Debt, and Economic Growth," Discussion Papers in Economics and Business 14-23-Rev.2, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Jun 2015.
  • Handle: RePEc:osk:wpaper:1423r2
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    Cited by:

    1. Real Arai & Katsuyuki Naito & Tetsuo Ono, 2018. "Intergenerational policies, public debt, and economic growth: a politico{economic analysis," Discussion Papers in Economics and Business 18-12, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

    More about this item

    Keywords

    Economic Growth; Government Debt; Overlapping Generations; Pop- ulation Aging; Voting;

    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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