How Do Governments Set Public Deficits? A Note on Persistent Deficit, Growth, and Indeterminacy

18 Pages Posted: 25 Mar 2013 Last revised: 11 May 2013

See all articles by Alfred Greiner

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Date Written: March 25, 2013

Abstract

In a recent paper Minea and Villieu (2012) present an endogenous growth model with productive public spending and government debt and assert that their model can generate multiple balanced growth paths. We show that their result is non-generic and point out where the error in their analysis is. In addition, we demonstrate that their deficit rule is a restrictive special case of a more general rule that has been frequently analyzed in economics, empirically and theoretically. This general rule gives rise to a richer dynamics in the sense that two saddle point stable balanced growth paths can ocur. In particular, the inter-temporal elasticity of substitution of consumption and the way how governments set the primary surplus are decisive as concerns the emergence of multiple balanced growth paths.

Keywords: Government debt, deficit rules, dynamics, endogenous growth

JEL Classification: H60, O23

Suggested Citation

Greiner, Alfred, How Do Governments Set Public Deficits? A Note on Persistent Deficit, Growth, and Indeterminacy (March 25, 2013). Available at SSRN: https://ssrn.com/abstract=2238586 or http://dx.doi.org/10.2139/ssrn.2238586

Alfred Greiner (Contact Author)

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

P.O. Box 100131
Bielefeld, 33501
Germany
+49 521 106 4859 (Phone)
+49 521 106 67120 (Fax)

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
52
Abstract Views
324
rank
434,063
PlumX Metrics