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Ageing and public capital accumulation

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Abstract

We have examined the effects of ageing on the balanced-growth-maximizing public investment policy in an overlapping generations model with growth engines of public capital accumulation. Extended life expectancy tends to increase individual savings, while the increased old-age dependency requires more resources to be allocated to consumption in the economy. Declining working population makes for a severe trade-off between private and public capital accumulation. It is shown that as ageing proceeds, not only the income tax rate must be raised to accelerate public capital formation but the expenditure share of maintenance should be increased in order to maximize the balanced-growth rate.

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Authors and Affiliations

  1. Graduate School of Systems and Information Engineering, University of Tsukuba, 1-1-1 Tennodai, Tsukuba, 305-8573, Japan

    Akira Yakita

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  1. Akira Yakita
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Correspondence to Akira Yakita.

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Yakita, A. Ageing and public capital accumulation. Int Tax Public Finance 15, 582–598 (2008). https://doi.org/10.1007/s10797-007-9041-0

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  • DOI: https://doi.org/10.1007/s10797-007-9041-0

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