DEMOGRAPHICS, POLITICAL-POWER AND ECONOMIC-GROWTH

There has been a resurgence in the use of growth theory to understand modern economies, international differences in living standards, and t he impact of government fiscal policies. It has not, however, been use d to guide our understanding of public policy. Growth theory may be us ed to predict the response of saving, capital formation, and output gr owth to large demographic shifts. Such large shifts would also be expe cted to alter the demand for government services and the desired level s of taxation in the population. This paper extends the overlapping-ge nerations model of economic growth to predict the evolution of governm ent tax and spending policy through the course of a major demographic shift. Simulations suggest that this approach may yield valuable insig hts into the evolution of policy in the United States and other indust rialized economies.