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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 capital accumu- lation, collective wage-bargaining, and probabilistic voting over fiscal policy. The study characterizes a Markov-perfect political equilibrium of the voting game within and across generations and shows the following results. First, greater bargaining power of unions lowers the growth rate of capital and creates a positive correla- tion between unemployment and public debt. Second, an increase in the political power of the old lowers the growth rate and shifts government expenditure from the unemployed to the old. Third, prohibiting debt finance increases the growth rate and benefits future generations; however, it worsens the current employed and unemployed.

Suggested Citation

  • Tetsuo Ono, 2014. "Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis," Discussion Papers in Economics and Business 14-30-Rev.2, Osaka University, Graduate School of Economics, revised Jan 2017.
  • Handle: RePEc:osk:wpaper:1430r2
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    References listed on IDEAS

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    Cited by:

    1. 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, revised Jun 2015.

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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; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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