Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis

Tetsuo Ono

No 14-30-Rev.2, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This study presents an overlapping-generations model featuring capital accumu- lation, collective wage-bargaining, and probabilistic voting over fiscal policy. The study characterizes a Markov-perfect political equilibrium of the voting game within and across generations and shows the following results. First, greater bargaining power of unions lowers the growth rate of capital and creates a positive correla- tion between unemployment and public debt. Second, an increase in the political power of the old lowers the growth rate and shifts government expenditure from the unemployed to the old. Third, prohibiting debt finance increases the growth rate and benefits future generations; however, it worsens the current employed and unemployed.

Keywords: Economic Growth; Fiscal Policy; Government Debt; Unemployment; Voting (search for similar items in EconPapers)
JEL-codes: E24 E62 H60 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2014-08, Revised 2017-01
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Related works:
Journal Article: GROWTH, UNEMPLOYMENT, AND FISCAL POLICY: A POLITICAL ECONOMY ANALYSIS (2019)
Working Paper: Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis (2015)
Working Paper: Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis (2014)
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