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A Politico-economic Approach on Public Debt in an Endogenous Growth Economy

Real Arai and Katsuyuki Naito

MPRA Paper from University Library of Munich, Germany

Abstract: We consider an overlapping generations closed economy in which a government finances the cost of public good provision by labor income taxation and/or public debt issuance. The size of these public policies is determined in a repeated probabilistic voting game. We investigate the characteristics of a Markov perfect politico-economic equilibrium in which the size of public policies depends on both the stock of public debt and the level of physical capital, and show that individuals' stronger preferences for public good provision tighten fiscal discipline and promote economic growth.

Keywords: public debt; probabilistic voting; Markov perfect equilibrium; economic growth (search for similar items in EconPapers)
JEL-codes: D72 H41 H63 O43 (search for similar items in EconPapers)
Date: 2014-05-27
New Economics Papers: this item is included in nep-cdm, nep-dge, nep-fdg, nep-gro and nep-pbe
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