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Political Economy of Taxation, Debt Ceilings, and Growth

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  • Uchida, Yuki
  • Ono, Tetsuo

Abstract

This study presents voting on policies including public education, taxes, and public debt in an overlapping-generations model with physical and human capital accumulation and analyzes the effects of a debt ceiling on the government's policy formation and its impact on growth and welfare. The debt ceiling induces the government to shift the tax burdens from the older to younger generations and increase public education spending, resulting in a higher growth rate. However, it creates a trade-off between generations in terms of welfare. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner; lowering the debt ceiling makes it possible for the government to approach the planner's allocation in an aging society.

Suggested Citation

  • Uchida, Yuki & Ono, Tetsuo, 2019. "Political Economy of Taxation, Debt Ceilings, and Growth," MPRA Paper 95134, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:95134
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    Cited by:

    1. Oguzhan Bozatli & Seref Can Serin & Murat Demir, 2024. "The causal relationship between public debt and economic growth in G7 countries: new evidence from time and frequency domain approaches," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-27, June.
    2. Uchida, Yuki & Ono, Tetsuo, 2022. "Politics of Public Education and Pension Reform with Endogenous Fertility," MPRA Paper 112748, University Library of Munich, Germany.
    3. 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.
    4. 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.
    5. 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.
    6. Maebayashi, Noritaka, 2023. "The pace of fiscal consolidations, fiscal sustainability, and welfare: An overlapping generations approach," Journal of Macroeconomics, Elsevier, vol. 75(C).

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    More about this item

    Keywords

    Debt ceiling; Probabilistic voting; Public debt; Economic growth; Overlapping generations;
    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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