A golden rule of public finance or a fixed deficit regime?: Growth and welfare effects of budget rules

Max Groneck

Economic Modelling, 2010, vol. 27, issue 2, 523-534

Abstract: In this paper, we compare growth and welfare effects of various budget rules within an endogenous growth model with productive public capital, utility enhancing public consumption and public debt. We find that introducing a fixed deficit regime does not affect the long run growth rate compared to a balanced budget while establishing a golden rule results in higher growth. Simulations of welfare effects indicate that a golden rule leads to highest welfare followed by a balanced budget and a fixed deficit regime. A maximum fraction of deficit financed public investment is derived. Varying the intertemporal elasticity of substitution shows that economies populated by households who have a strong tendency to smooth consumption should adhere to a balanced budget from a welfare point of view.

Keywords: Budget; rules; Golden; rule; of; public; finance; Fiscal; policy; Endogenous; growth; Welfare (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264-9993(09)00195-3
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A Golden Rule of Public Finance or a Fixed Deficit Regime? Growth and Welfare Effects of Budget Rules (2008)
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:eee:ecmode:v:27:y:2010:i:2:p:523-534

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().