Public Debt in a Descriptive Endogenous Growth Model

19 Pages Posted: 11 Apr 2019

See all articles by Alfred Greiner

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Date Written: April 2019

Abstract

In this paper we analyze a descriptive endogenous growth model with public debt. The government can run into debt, but, the primary surplus is a positive function of the debt to GDP ratio such that the debt ratio becomes a mean-reverting process. We show that a balanced budget scenario yields a higher long-run growth rate than a scenario with permanent deficits if and only if the public deficit exceeds the net saving out of government bonds. As regards the dynamics, the analysis shows that multiple balanced growth paths can arise. Further, reducing the reaction of the primary surplus to a higher public debt can generate endogenous cycles via a Hopf bifurcation and, for a sufficiently low reaction coefficient, the economy becomes unstable.

Keywords: Public debt, balanced budget, endogenous growth, stability

JEL Classification: H63, O41

Suggested Citation

Greiner, Alfred, Public Debt in a Descriptive Endogenous Growth Model (April 2019). Bielefeld Working Papers in Economics and Management No. 05-2019, Available at SSRN: https://ssrn.com/abstract=3370095 or http://dx.doi.org/10.2139/ssrn.3370095

Alfred Greiner (Contact Author)

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

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