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Fiscal sustainability under physical and human capital accumulation in an overlapping generations model

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  • Takumi Motoyama

    () (Graduate School of Economics, Osaka University)

Abstract

We consider fiscal sustainability by using an overlapping generations model with human capital accumulation (private and public education) and public debt. Based on this model, we explicitly show (i) the parameter region in which the economy cannot be fiscally sustainable for any initial endowment, and (ii) the threshold of initial endowment over (under) which the economy diverges (converges) to the steady state. Importantly, the threshold is neutral to the level of initial human capital. Further, we show the existence and uniqueness of the growth-maximizing level of each policy variable (i.e., the tax rate and public education/production ratio).

Suggested Citation

  • Takumi Motoyama, 2017. "Fiscal sustainability under physical and human capital accumulation in an overlapping generations model," Discussion Papers in Economics and Business 17-05, Osaka University, Graduate School of Economics.
  • Handle: RePEc:osk:wpaper:1705
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1705.pdf
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    References listed on IDEAS

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    1. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 651-664.
    2. Grossman, Gene M. & Yanagawa, Noriyuki, 1993. "Asset bubbles and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 3-19, February.
    3. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    4. Real Arai, 2011. "Productive Government Expenditure and Fiscal Sustainability," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(4), pages 327-351, December.
    5. Yakita, Akira, 2008. "Sustainability of public debt, public capital formation, and endogenous growth in an overlapping generations setting," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 897-914, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Human capital accumulation; Public education; Public debt; Fiscal sustainability;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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