Golden Rule of Public Finance: A Panacea?

Mustafa Ismihan () and Gulcin Ozkan

Discussion Papers from Department of Economics, University of York

Abstract: This paper shows that adopting a golden rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing, expandingpublic investment is beneficial. Otherwise, both macroeconomic stability and debt sustainability are compromised. As such, we argue that policy-makers should prioritise the productivity of public investment rather than its level.

Keywords: Public investment; public debt; golden rule. (search for similar items in EconPapers)
JEL-codes: E62 H50 H63 (search for similar items in EconPapers)
Date: 2008-07
New Economics Papers: this item is included in nep-mac and nep-pub
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Citations: View citations in EconPapers (2)

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Journal Article: The Golden Rule of Public Finance: A Panacea? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:08/19

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