Public deficits and economic growth

Oscar Afonso, Rui Alves and Paulo B. Vasconcelos

Economic Modelling, 2009, vol. 26, issue 5, 1101-1109

Abstract: Considering an integrated area, this paper deals with the balance between the positive effects in the degree of economic cohesion resulting from R&D subsidies, temporarily granted from an imitator and less developed country, and the external negative effects arising from the eventual creation of excessive public deficits. We propose and numerically solve a model of a monetary union between two countries, one being innovator and the other imitator. Results suggest the pertinence of allowing for a temporary differentiation of fiscal discipline rules in favour of the less developed country. R&D subsidies granted by this country seem to lead to an easier catching-up without producing important negative external effects, also as not hurting severely the conditions for long-run sustainability of public accounts.

Keywords: Economic; growth; R&D; subsidies; Economic; cohesion; Public; deficits; Numerical; computations (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:26:y:2009:i:5:p:1101-1109

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