Public Debt and the Dynamics of Economic Growth

25 Pages Posted: 12 May 2010 Last revised: 30 Dec 2012

See all articles by Alfred Greiner

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Date Written: May 7, 2010

Abstract

We analyze effects of public debt on economic growth and its dynamics in a basic endogenous growth assuming that the history of debt affects the primary surplus of the government. The economy with a balanced government budget is characterized by a unique balanced growth path and a condition for saddle point stability is derived. With permanent public deficits there is either no balanced growth path, a unique balanced growth path or there exist two balanced growth paths. The balanced growth path is either stable or unstable. Further, the system may undergo a Hopf bifurcation leading to stable limit cycles.

Keywords: Inter-temporal budget constraint, balanced budget, endogenous growth, dynamics, Hopf bifurcation

JEL Classification: H60, O23

Suggested Citation

Greiner, Alfred, Public Debt and the Dynamics of Economic Growth (May 7, 2010). Available at SSRN: https://ssrn.com/abstract=1601902 or http://dx.doi.org/10.2139/ssrn.1601902

Alfred Greiner (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

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HOME PAGE: http://phoenix.wiwi.uni-bielefeld.de/lehrbereiche/vwl/wipol

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