Political economy of taxation, debt ceilings, and growth

Yuki Uchida and Tetsuo Ono

European Journal of Political Economy, 2021, vol. 68, issue C

Abstract: This study presents voting on policies, including labor and capital income taxes and public debt, in an overlapping-generations model with physical and human capital accumulation, and analyzes the effects of a debt ceiling on a government's policy formation and its impact on growth and welfare. The results show that the debt ceiling induces the government to shift the tax burdens from the older to younger generations, but stimulates physical capital accumulation and may increase public education expenditure, resulting in a higher growth rate. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner and lowering the debt ceiling (i.e., tightening fiscal discipline) makes it possible for the government to approach the planner's allocation in an aging society.

Keywords: Debt ceiling; Probabilistic voting; Public debt; Economic growth; Overlapping generations (search for similar items in EconPapers)
JEL-codes: D70 E24 H63 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Political Economy of Taxation, Debt Ceilings, and Growth (2020)
Working Paper: Political Economy of Taxation, Debt Ceilings, and Growth (2019)
Working Paper: Political Economy of Taxation, Debt Ceilings, and Growth (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:68:y:2021:i:c:s0176268020301440

DOI: 10.1016/j.ejpoleco.2020.101996

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