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Public Investment and Golden Rule of Public Finance in an Overlapping Generations Model
1 : Nagoya University
Graduate School of Economics, Nagoya University, Furo-cho, Chikusa-ku, Nagoya, 464-8601, Japan -
Japan
2 : Hokusei Gakuen Univerisity
2-3-1, Ohyachi-Nishi, Atsubetsu-ku, Sapporo 004-8631 -
Japan
This paper develops an overlapping generations model with debt-financing public investment. The model assumes that the government is subject to the Golden Rule of Public Finance, and that households are Yaari-Blanchard type, which is enable to compare the model with Ramsey type households. It is shown in the paper that the growth-maximizing and utility-maximizing tax rate do not satisfy Barro tax rule. Furthermore, we show that both tax rates positively depend on the longevity and therefore population aging increases debt per GDP. This result captures a tendency of increasing debt per GDP under population aging.
