Balanced Government Budgets versus Deficit Finance in a Growth Economy

Shawn Ni () and X. Wang ()

Canadian Journal of Economics, 1995, vol. 28, issue 4b, 1120-34

Abstract: This paper analyzes the effects of balanced-budgets and deficit-finance policies on the resulting steady-state capital stock in a simple neoclassical growth model. It is shown that the steady-state capital stock may be higher or lower if the government is required to balance its budget in each period than if it uses deficit finance, depending on the level of the initial capital stock and the curvature of the utility function of the representative agent.

Date: 1995
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