Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-11-22T19:09:18.409Z Has data issue: false hasContentIssue false
  • English
  • Français

DEBT POLICY RULE, PRODUCTIVE GOVERNMENT SPENDING, AND MULTIPLE GROWTH PATHS

Published online by Cambridge University Press:  01 September 2008

Koichi Futagami ,
Tatsuro Iwaisako  and
Ryoji Ohdoi
Koichi Futagami
Affiliation:
Osaka University
Tatsuro Iwaisako*
Affiliation:
Ritsumeikan University
Ryoji Ohdoi
Affiliation:
Osaka City University
*
Address correspondence to: Tatsuro Iwaisako, 1-1-1, Noji-higashi, Kusatsu, Shiga 525-8577, Japan; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper constructs an endogenous growth model with productive government spending. In this model, the government can finance its costs through income tax and government debt and has a target level of government debt relative to the size of the economy. We show that there are two steady states. One is associated with high growth and the other with low growth. It is also shown that whether the government uses income taxes or government bonds makes the results differ significantly. In particular, an increase in government bonds reduces the growth rate in the high-growth steady state and raises the growth rate in the low-growth steady state. Conversely, an increase in the income tax rate reduces the growth rate in the low-growth steady state and there exists some tax rate that maximizes the growth rate in the high-growth steady state. Finally, the level of welfare in the low-growth steady state is lower than that in the high-growth steady state.

Keywords

Public ExpenditureDebt PolicyEndogenous GrowthMultiple Equilibria
Type
Articles
Information
Macroeconomic Dynamics , Volume 12 , Issue 4 , September 2008 , pp. 445 - 462
Copyright
Copyright © Cambridge University Press 2008

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Barro, Robert J. (1990) Government spending in a simple model of endogenous growth. Journal of Political Economy 98, s103–s125.Google Scholar
Benhabib, Jess and Farmer, Roger E. A. (1999) Indeterminacy and sunspots in macroeconomics. In Taylor, John B. and Woodford, Michael (eds.), Handbook of Macroeconomics, Vol. 1A, pp. 387–448. Amsterdam: North-Holland.CrossRefGoogle Scholar
Bruce, Neil and Turnovsky, Stephen J. (1999) Budget balance, welfare, and the growth rate: “Dynamic scoring” of the long-run government budget. Journal of Money, Credit, and Banking 31, 162–186.CrossRefGoogle Scholar
Dela Croix, David la Croix, David and Michel, Philippe (2002) A Theory of Economic Growth: Dynamics and Policy in Overlapping Generations. Cambridge, UK: Cambridge University Press.Google Scholar
Futagami, Koichi and Mino, Kazuo (1995) Public capital and patterns of growth in the presence of threshold externalities. Zeitschrift für Nationalökonomie 61, 123–146.CrossRefGoogle Scholar
Futagami, Koichi, Morita, Yuichi, and Shibata, Akihisa (1993) Dynamic analysis of an endogenous growth model with public capital. Scandinavian Journal of Economics 95 (4), 607–625.Google Scholar
Ghosh, Sugata and Mourmouras, Iannis A. (2004) Endogenous growth, welfare, and budgetary regimes. Journal of Macroeconomics 26, 624–635.Google Scholar
Greiner, Alfred and Semmler, Willi (1999) An endogenous growth model with public capital and government borrowing. Annals of Operations Research 88, 65–79.Google Scholar
Greiner, Alfred and Semmler, Willi (2000) Endogenous growth, government debt and budgetary regimes. Journal of Macroeconomics 22, 363–384.CrossRefGoogle Scholar
Hu, Yunfang, Ohdoi, Ryoji, and Shimomura, Koji (Forthcoming) Indeterminacy in a two-sector endogenous growth model with productive government spending. Journal of Macroeconomics.Google Scholar
Minea, Alexandru and Villieu, Patrick (2006) Persistent Debt, Growth and Indeterminacy: The “Golden Rule of Public Finance” revisited. Working Paper 4/2005, University of Orleans (LEO).Google Scholar
Turnovsky, Stephen J. (1997) Fiscal policy in a growing economy with public capital. Macroeconomic Dynamics 1, 615–639.Google Scholar
Turnovsky, Stephen J. (2000) Methods of Macroeconomic Dynamics, 2nd ed. Cambridge, MA: MIT Press.Google Scholar