Intergenerational Politics, Government Debt, and Economic Growth

Tetsuo Ono

No 14-23-Rev.2, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This study presents a two-period overlapping-generations model featuring in- tergenerational conflict over fiscal policy. In particular, we characterize a Markov- perfect political equilibrium of the voting game between generations and show the following three main results. First, population aging incentivizes the government to invest more in capital for future public spending, positively affecting economic growth. Second, when the government finances its spending by issuing bonds, the introduction of the balanced budget rule results in a higher public spending-to-GDP ratio and a higher growth rate. Third, to obtain a normative implication of the po- litical equilibrium, we compare it with an allocation chosen by a benevolent planner who takes care of all future generations. The planner's allocation might feature less growth and more borrowing than the political equilibrium if the planner attaches low weights to future generations.

Keywords: Economic Growth; Government Debt; Overlapping Generations; Pop- ulation Aging; Voting (search for similar items in EconPapers)
JEL-codes: D72 D91 H63 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2014-06, Revised 2015-06
New Economics Papers: this item is included in nep-age, nep-cdm, nep-dge, nep-fdg, nep-gro, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Intergenerational Politics, Government Debt, and Economic Growth (2015)
Working Paper: Intergenerational Politics, Government Debt and Economic Growth (2014)
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