Generational Distribution of Fiscal Burdens: A Positive Analysis

Uchida, Yuki and Ono, Tetsuo (2023): Generational Distribution of Fiscal Burdens: A Positive Analysis.

Abstract

This study presents a political economy model with overlapping generations to analyze the effects of population aging on fiscal policy formation and the resulting distribution of the fiscal burden across generations. We show that population aging incentivizes the government to raise the capital and labor income tax rates as well as the ratio of public debt to GDP; this result is consistent with the cross-country evidence of OECD countries. We then undertake a model-based simulation over the period 2000-2070 for Japan and the United States and show that Japan is anticipated to face higher labor income tax rates, a greater public debt-to-GDP ratio, and a lower government expenditure-to-GDP ratio than the United States throughout the entire period. Moreover, starting form 2040, Japan is predicted to surpass the United States in terms of the capital tax rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Generational burden; Overlapping generations; Political economy; Population aging; Public debt
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D70 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General

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