Sustainable Public Debt and Economic Growth Under Wage Rigidity

21 Pages Posted: 2 Apr 2013

See all articles by Alfred Greiner

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

We analyse the effects of public debt on economic growth in a basic endogenous growth model with persistent unemployment due to wages rigidities. We show that there exists either a unique balanced growth path or there are two balanced growth paths depending on structural parameters and on the flexibility of the labour market. Further, public debt does not affect longā€run growth and employment but only stability of the economy. Stability is more likely when governments put a high weight on stabilizing the debt to GDP ratio.

Suggested Citation

Greiner, Alfred, Sustainable Public Debt and Economic Growth Under Wage Rigidity (May 2013). Metroeconomica, Vol. 64, Issue 2, pp. 272-292, 2013, Available at SSRN: https://ssrn.com/abstract=2243362 or http://dx.doi.org/10.1111/meca.12006

Alfred Greiner (Contact Author)

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

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