Debt-financed fiscal policy, public capital, and endogenous growth

Takefumi Hagiwara ()
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Takefumi Hagiwara: Graduate School of Economics, Kyoto University

Economics Bulletin, 2025, vol. 45, issue 1, 196 - 209

Abstract: This study investigates the conflicting effects of a debt-financed fiscal policy in an overlapping generations model with public capital and debt. An accumulation of public capital enhances the production efficiency of private capital, whereas it impedes private capital accumulation by distorting savings allocations through public debt issuance. With a low deficit ratio, the fiscal policy brings steady-state equilibria to an unstable economy. Meanwhile, a debt-financed fiscal policy with a higher deficit ratio causes a fiscal collapse and secular stagnation.

Keywords: Fiscal Sustainability; Public Debt; Public Capital; Secular Stagnation (search for similar items in EconPapers)
JEL-codes: E6 H6 (search for similar items in EconPapers)
Date: 2025-03-30
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