Political Economy of Taxation, Debt Ceilings, and Growth

Uchida, Yuki and Ono, Tetsuo (2019): Political Economy of Taxation, Debt Ceilings, and Growth.

Abstract

This study presents voting on policies including public education, taxes, and public debt in an overlapping-generations model with physical and human capital accumulation and analyzes the effects of a debt ceiling on the government's policy formation and its impact on growth and welfare. The debt ceiling induces the government to shift the tax burdens from the older to younger generations and increase public education spending, resulting in a higher growth rate. However, it creates a trade-off between generations in terms of welfare. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner; lowering the debt ceiling makes it possible for the government to approach the planner's allocation in an aging society.

• Item Type: MPRA Paper
• Language: English
• Keywords: Debt ceiling; Probabilistic voting, Public debt, Economic growth, Overlapping generations
• 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; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt

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