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Productive Government Expenditure and Fiscal Sustainability

Real Arai

FinanzArchiv: Public Finance Analysis, 2011, vol. 67, issue 4, 327-351

Abstract: We consider an overlapping-generations model in which public spending directly contributes to an increase in productivity, as in the model of Barro (1990), and in which the government maintains constant ratios of public spending to GDP and of debt issuance to public spending. We numerically analyze the effects of a change of public-spending/GDP on fiscal sustainability, growth rate, and welfare. First, if that ratio is small, an increase in it makes public debt sustainable. Second, if it is small, then an increase in it is Pareto improving.

Keywords: fiscal sustainability; welfare; productive government spending; public debt; endogenous growth (search for similar items in EconPapers)
JEL-codes: E62 H53 H63 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1628/001522108X614150

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