The Budget Deficit, Public Debt and Endogenous Growth

Universitaet der Bundeswehr Hamburg, Economic Theory Discussion Paper No. 2/2002

16 Pages Posted: 17 Jan 2003

See all articles by Michael Bräuninger

Michael Bräuninger

HWWI - Hamburg Institute of International Economics; Universitaet der Bundeswehr Hamburg - Department of Economics

Date Written: October 2002

Abstract

This paper analyzes the effects of public debt on endogenous growth in an overlapping generations model. The government fixes the budget deficit ratio. If the deficit ratio stays below a critical level, then there are two steady states where capital, output, and public debt grow at the same constant rate. An increase in the deficit ratio reduces the growth rate. If the deficit ratio exceeds the critical level, then there is no steady state. Capital growth declines continuously and capital is driven down to zero in finite time.

Keywords: public debt, budget deficit, endogenous growth

JEL Classification: H63, O41

Suggested Citation

Braeuninger, Michael, The Budget Deficit, Public Debt and Endogenous Growth (October 2002). Universitaet der Bundeswehr Hamburg, Economic Theory Discussion Paper No. 2/2002. Available at SSRN: https://ssrn.com/abstract=362940 or http://dx.doi.org/10.2139/ssrn.362940

Michael Braeuninger (Contact Author)

HWWI - Hamburg Institute of International Economics ( email )

Heimhuder Strasse 71
D-20347 Hamburg, DE Hamburg 20148
Germany

Universitaet der Bundeswehr Hamburg - Department of Economics ( email )

Holstenhofweg 85
Hamburg, 22043
Germany
+49-40-6541-2860 (Fax)

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