Fiscal policy in an endogenous-growth model with public investment: A note

1998 ◽  
Vol 68 (2) ◽  
pp. 193-198 ◽  
Author(s):  
Alfred Greiner
Keyword(s):  
Fiscal Policy ◽  
Endogenous Growth ◽  
Growth Model ◽  
Public Investment ◽  
Endogenous Growth Model

scholarly journals DYNAMIC ANALYSIS OF REDUCTIONS IN PUBLIC DEBT IN AN ENDOGENOUS GROWTH MODEL WITH PUBLIC CAPITAL

2016 ◽  
Vol 21 (6) ◽  
pp. 1454-1483 ◽  
Author(s):  
Noritaka Maebayashi ◽  
Takeo Hori ◽  
Koichi Futagami
Keyword(s):  
Endogenous Growth ◽  
Growth Model ◽  
Public Investment ◽  
Public Capital ◽  
Government Debt ◽  
The European Union ◽  
Fiscal Consolidation ◽  
Growth Pact ◽  
Endogenous Growth Model ◽  
The Government

We construct an endogenous growth model that includes productive public capital and government debt. We assume that the government debt-to-GDP ratio is gradually adjusted to a target level, reflecting the permanent commitment rules in the Stability and Growth Pact or the Maastricht Treaty in the European Union (i.e., the well-known 60% rule). These rules affect government borrowing and public investment. Here, we examine the welfare implications of the permanent commitment rules. We find that fiscal consolidation based on the rules improves social welfare. Moreover, the improvement in welfare accelerates as fiscal consolidation progresses more rapidly. Last, we also discuss and derive the optimal long-run debt-to-GDP ratio.

Sign in / Sign up

Export Citation Format

Share Document