Government Debt and Aggregate Stability with Endogenous Growth: Some General Results

15 Pages Posted: 4 Mar 2014  

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Date Written: March 2014

Abstract

We consider a general class of endogenous growth models with infinitely lived households and analyze how different budgetary rules affect the stability of the economy. We show that a discretionary fiscal policy implies that the government always violates its inter-temporal budget constraint along a balanced growth path, whereas a balanced budget rule tends to stabilize the economy. A rule based debt policy makes the economy converge to the balanced growth path provided the reaction of the primary surplus to higher public debt is sufficiently large so that the debt to GDP ratio becomes a mean-reverting process.

Keywords: Public debt, inter-temporal budget constraint, budgetary rules, stability, endogenous growth

JEL Classification: H6, O4

Suggested Citation

Greiner, Alfred, Government Debt and Aggregate Stability with Endogenous Growth: Some General Results (March 2014). Bielefeld Working Papers in Economics and Management No. 05-2014. Available at SSRN: https://ssrn.com/abstract=2403872 or http://dx.doi.org/10.2139/ssrn.2403872

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

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