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A Politico-economic Approach on Public Debt in an Endogenous Growth Economy

Listed author(s):
  • Arai, Real
  • Naito, Katsuyuki

We consider an overlapping generations closed economy in which a government finances the cost of public good provision by labor income taxation and/or public debt issuance. The size of these public policies is determined in a repeated probabilistic voting game. We investigate the characteristics of a Markov perfect politico-economic equilibrium in which the size of public policies depends on both the stock of public debt and the level of physical capital, and show that individuals' stronger preferences for public good provision tighten fiscal discipline and promote economic growth.

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File URL: https://mpra.ub.uni-muenchen.de/56213/1/MPRA_paper_56213.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 56213.

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Date of creation: 27 May 2014
Handle: RePEc:pra:mprapa:56213
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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
  2. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
  3. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
  4. Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1243-1259.
  5. Gonzalez-Eiras, Marti­n & Niepelt, Dirk, 2008. "The future of social security," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 197-218, March.
  6. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2012. "Rotten Parents and Disciplined Children: A Politico‐Economic Theory of Public Expenditure and Debt," Econometrica, Econometric Society, vol. 80(6), pages 2785-2803, November.
  7. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
  8. Tabellini, Guido & Alesina, Alberto, 1990. "Voting on the Budget Deficit," American Economic Review, American Economic Association, vol. 80(1), pages 37-49, March.
  9. Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007. "Democratic public good provision," Journal of Economic Theory, Elsevier, vol. 133(1), pages 127-151, March.
  10. Pierre Yared, 2010. "Politicians, Taxes and Debt," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 806-840.
  11. Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Debt and Growth," IMF Working Papers 10/174, International Monetary Fund.
  12. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
  13. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January.
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