Public Debt, Productive Public Spending and Endogenous Growth

16 Pages Posted: 23 Oct 2015

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: December 2015

Abstract

We analyse the effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy in general violates the intertemporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth path. With a rule‐based policy, two saddle point stable balanced growth paths can occur, depending on the intertemporal elasticity of substitution of consumption and on the primary surplus policy. Higher debt goes along with smaller long‐run growth and we derive a condition such that a deficit‐financed increase in public spending raises the growth rate.

JEL Classification: H60, O23

Suggested Citation

Greiner, Alfred, Public Debt, Productive Public Spending and Endogenous Growth (December 2015). Japanese Economic Review, Vol. 66, Issue 4, pp. 520-535, 2015, Available at SSRN: https://ssrn.com/abstract=2678410 or http://dx.doi.org/10.1111/jere.12077

Alfred Greiner (Contact Author)

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

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