Public Investment and Golden Rule of Public Finance in an Overlapping Generations Model

Akira Kamiguchi and Toshiki Tamai

No 971, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper develops an overlapping generations model with debt-financed public investment. The model assumes that the government is subject to the golden rule of public finance and that households are Yaari-Blanchard type. It is shown that the growth-maximizing and utility-maximizing tax rates do not satisfy the Barro tax rule, which is equal to the output elasticity of public capital. Furthermore, we show that both tax rates positively depend on longevity, with an aging population increasing debt per GDP. This result captures a tendency of increasing debt per GDP under population aging in the real world.

Keywords: Public capital; Golden rule of public finance; Economic growth (search for similar items in EconPapers)
JEL-codes: H54 H60 O40 (search for similar items in EconPapers)
Pages: 22pages
Date: 2017-04
New Economics Papers: this item is included in nep-age, nep-dge, nep-gro and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:971

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