Population Aging, the Composition of Government Spending,and Endogenous Economic Growth in Politico-Economic Equilibrium

Johanna Kuehnel

No 510, Working Papers from University of Heidelberg, Department of Economics

Abstract: This paper introduces a democratic voting process into an OLG economy in order to analyze the e ffects of a rising old-age dependency ratio on the composition of government spending and endogenous economic growth. Forward-looking agents vote each period on the public policy mix between productive government expenditure and public consumption spending that benefi ts the elderly. Population aging shifts political power from the young to the old. While this does not aff ect public productive expenditure, it leads to an increase in public spending on the elderly and a slowdown in economic growth. However, the overall e ffect on long-term economic growth is positive. This is due to reduced capital dilution or increased saving.

Keywords: Demographics; Endogenous Economic Growth; Government Spending; Markov Perfect Equilibrium; Probabilistic Voting (search for similar items in EconPapers)
JEL-codes: D72 E62 O41 (search for similar items in EconPapers)
Date: 2011-02-17
New Economics Papers: this item is included in nep-age, nep-cdm, nep-dge, nep-fdg, nep-pbe and nep-pol
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Citations: View citations in EconPapers (4)

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