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

Arai, Real and Naito, Katsuyuki (2014): A Politico-economic Approach on Public Debt in an Endogenous Growth Economy.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: public debt; probabilistic voting; Markov perfect equilibrium; economic growth
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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