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DEBT POLICY RULE, PRODUCTIVE GOVERNMENT SPENDING, AND MULTIPLE GROWTH PATHS: A NOTE

Published online by Cambridge University Press:  30 January 2012

Alexandru Minea  and
Patrick Villieu
Alexandru Minea*
Affiliation:
CERDI, University of Auvergne
Patrick Villieu
Affiliation:
LEO, University of Orléans
*
Address correspondence to: Alexandru Minea, CERDI (University of Auvergne), 65 Boulevard François Mitterrand, B.P. 320, 63009 Clermont-Ferrand Cedex 1, France; e-mail: [email protected].
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Abstract

In a very interesting endogenous growth model, Futagami, Iwaisako, and Ohdoi [Macroeconomic Dynamics 12 (2008), 445–462] study the long-run growth effect of borrowing for public investment. Their model exhibits (i) the multiplicity of balanced growth paths (BGPs) in the long run (two steady states) and (ii) a possible indeterminacy of the transition path to the high-growth BGP. The goal of this note is to show that their results depend on a sharp assumption, namely the definition of the public debt target as a ratio to private capital. If the target is defined in terms of public debt–to–GDP ratio, both results vanish: the model exhibits a unique BGP (no multiplicity) and the adjustment path to this unique equilibrium is determinate (no indeterminacy).

Keywords

DeficitPublic InvestmentPublic DebtEndogenous GrowthMultiplicity
Type
Notes
Information
Macroeconomic Dynamics , Volume 17 , Issue 4 , June 2013 , pp. 947 - 954
Copyright
Copyright © Cambridge University Press 2012 

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References

REFERENCES

Futagami, Koichi, Iwaisako, Tatsuro, and Ohdoi, Ryoji (2008) Debt policy rules, productive government spending, and multiple growth paths. Macroeconomic Dynamics 12, 445–462.CrossRefGoogle Scholar
Minea, Alexandru and Villieu, Patrick (2010) Endogenous growth, government debt and budgetary regimes, by Greiner, A. and W. Semmler: A corrigendum. Journal of Macroeconomics 32, 709–711.CrossRefGoogle Scholar
Minea, Alexandru and Villieu, Patrick (in press) Persistent deficit, growth and indeterminacy. Macroeconomic Dynamics.Google Scholar