The Impact of Simple Fiscal Rules in Growth Models with Public Goods and Congestion

Centre for Dynamic Macroeconomic Analysis Working Paper No. 0502

31 Pages Posted: 9 May 2005

See all articles by Sugata Ghosh

Sugata Ghosh

Cardiff University - Cardiff Business School - Economics Section

Charles Nolan

University of St. Andrews

Date Written: January 2005

Abstract

In this paper we examine the implication of a simple class of fiscal rules for long-run economic growth and welfare. The golden rule of public finance (GRPF) that we examine is motivated by institutional arrangements in countries such as Germany and the UK. We find that rules which seek to limit government borrowing to productive investment spending have a clear justification in terms of growth and welfare when government provided goods are otherwise excessively provided. Even in the case where it is private consumption that is excessive, the GRPF is likely to be good from a growth perspective, but the welfare effects are more ambiguous.

Suggested Citation

Ghosh, Sugata and Nolan, Charles, The Impact of Simple Fiscal Rules in Growth Models with Public Goods and Congestion (January 2005). Centre for Dynamic Macroeconomic Analysis Working Paper No. 0502, Available at SSRN: https://ssrn.com/abstract=717941 or http://dx.doi.org/10.2139/ssrn.717941

Sugata Ghosh (Contact Author)

Cardiff University - Cardiff Business School - Economics Section ( email )

Cardiff CF10 3EU
United Kingdom
44 1222 875515 (Phone)
44 1222 874419 (Fax)

Charles Nolan

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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