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Political Economy of Taxation, Debt Ceilings, and Growth

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  • Tetsuo Ono

    (Graduate School of Economics, Osaka University)

  • Yuki Uchida

    (Faculty of Economics, Seikei University)

Abstract

This study presents an overlapping-generations model with physical and human capital accumulation and considers probabilistic voting over capital and labor taxes and public debt to finance public education expenditure. Our analysis shows that the greater political power of the old induces the government to raise the labor tax on the young and lower the capital tax on the old as well as issue debt. The analysis also shows that the introduction of a debt ceiling rule calls for a rise in the labor tax and thus lowers the welfare of the currently working generation. However, it increases the growth rate, and this growth effect raises the welfare of future generations. These benefits last for a long period even if the rule is imposed only for a limited time.

Suggested Citation

  • Tetsuo Ono & Yuki Uchida, 2018. "Political Economy of Taxation, Debt Ceilings, and Growth," Discussion Papers in Economics and Business 18-22, Osaka University, Graduate School of Economics.
  • Handle: RePEc:osk:wpaper:1822
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    Cited by:

    1. Uchida, Yuki & Ono, Tetsuo, 2022. "Politics of Public Education and Pension Reform with Endogenous Fertility," MPRA Paper 112748, University Library of Munich, Germany.
    2. Uchida, Yuki & Ono, Tetsuo, 2021. "Borrowing to finance public investment: a politico-economic analysis of fiscal rules," MPRA Paper 115844, University Library of Munich, Germany, revised 31 Dec 2022.
    3. Maebayashi, Noritaka, 2023. "The pace of fiscal consolidations, fiscal sustainability, and welfare: An overlapping generations approach," Journal of Macroeconomics, Elsevier, vol. 75(C).
    4. Yuki Uchida & Tetsuo Ono, 2024. "Generational Distribution of Fiscal Burdens: A Positive Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 393-430, February.
    5. Janusz Kud³a & Robert Kruszewski & Maciej Dudek & Konrad Walczyk, 2023. "The impact of bequest taxation on savings and transfers," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(2), pages 333-365, June.

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    More about this item

    Keywords

    Capital taxation; Public debt; Economic growth; Probabilistic vot- ing; Overlapping-generations model;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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