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Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis

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  • Tetsuo Ono

    () (Graduate School of Economics, Osaka University)

Abstract

This study presents an overlapping-generations model featuring endogenous growth, collective wage-bargaining, and probabilistic voting over fiscal policy. We charac- terize a Markov-perfect political equilibrium of the voting game within and across generations and show the following results. First, greater bargaining power of unions lowers the growth rate of capital and creates a positive correlation between unem- ployment and government debt. Second, greater political power of the old lowers the growth rate and shifts government expenditure from the unemployed to the old. Third, a balanced budget requirement increases the growth rate but may benefit the old at the expense of the unemployed.

Suggested Citation

  • Tetsuo Ono, 2014. "Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis," Discussion Papers in Economics and Business 14-30, Osaka University, Graduate School of Economics.
  • Handle: RePEc:osk:wpaper:1430
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    More about this item

    Keywords

    Economic Growth; Fiscal Policy; Government Debt; Unemployment; Voting;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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