PERSISTENT DEFICIT, GROWTH, AND INDETERMINACY

Alexandru Minea and Patrick Villieu

Macroeconomic Dynamics, 2012, vol. 16, issue S2, 267-283

Abstract: In this paper, we look for long-run and short-run effects of fiscal deficits on economic growth in an endogenous growth model with productive public spending that may be financed by public deficit and debt. The model shows a multiplicity of long-run balanced growth paths (a high-growth and a low-growth steady state) and a possible indeterminacy of the transition path, which may be consistent with the empirical literature, which exhibits strong nonlinear responses of economic growth to fiscal deficits. Starting from the high-growth steady state, a positive impulse in the deficit ratio exerts an adverse effect on economic growth in the long run, after an initial rise. Starting from the low-growth steady state, the situation may be radically undetermined, and the effect of fiscal deficit impulses is subjected to “optimistic” or “pessimistic” views on public-debt sustainability.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (44)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:16:y:2012:i:s2:p:267-283_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().