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The Political Economy of Non-Compliance with the Golden Rule of Public Finance

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  • Yuki Uchida

    (Faculty of Economics, Seikei University)

  • Tetsuo Ono

    (Graduate School of Economics, The University of Osaka)

Abstract

This study examines the limitations of political equilibrium in fiscal policy when shortsighted governments represent only the middle-aged and older adult generations, in contrast to a Ramsey planner who values them as well as the young and future generations. Using a three-period overlapping generations model calibrated to Germany, Japan, and the United Kingdom, we analyze the Golden Rule of Public Finance (GR), which permits deficit financing solely for public investment. We find that: (i) reduced GR compliance shifts fiscal burdens from the middle-aged to the older adult, young, and future generations; (ii) compliance depends on the elasticity of public capital, preferences for public goods, and GDP growth; and (iii) non-compliance drives political equilibrium away from the Ramsey allocation. Extending voting rights to the young is a more effective mechanism for mitigating inefficiency and enhancing fiscal rule compliance than Demeny voting, which allocates additional votes to the middle-aged based on the number of their children.

Suggested Citation

  • Yuki Uchida & Tetsuo Ono, 2025. "The Political Economy of Non-Compliance with the Golden Rule of Public Finance," Discussion Papers in Economics and Business 25-01-Rev., Osaka University, Graduate School of Economics, revised Feb 2026.
    • Handle: RePEc:osk:wpaper:2501r
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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