Public debt in a basic endogenous growth model

Alfred Greiner

Economic Modelling, 2012, vol. 29, issue 4, 1344-1348

Abstract: We work out the mechanism that makes public debt affect the allocation of resources in the long-run. To do so we analyze an AK growth model with elastic labor supply and a government sector. The government levies a distortionary income tax and issues bonds to finance lump-sum transfers and non-distortionary public spending. We show that the long-run growth rate is the smaller the higher the debt ratio if the government adjusts public spending to fulfill its inter-temporal budget constraint. If the government adjusts lump-sum transfers the public debt ratio does not affect the balanced growth rate.

Keywords: Government debt; Inter-temporal budget constraint; Public spending; Lump-sum transfers (search for similar items in EconPapers)
JEL-codes: E62 H61 O41 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:4:p:1344-1348

DOI: 10.1016/j.econmod.2012.03.005

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