 Optimal Fiscal Policy in a Small Open Economy: Insights from the Growth Model with Human Capital and Public DebtMichał Konopczyński ()
Central European Journal of Economic Modelling and Econometrics, 2022, vol. 14, issue 2, 131-160 Abstract: This paper investigates the linkages between economic growth and fiscal policy under perfect capital mobility. The model incorporates wide range of fiscal policy instruments: the budget deficit, the structure of public debt, public expenditures on education, public consumption, and four tax rates. We prove that two tax rates – on consumption and interest on government bonds held by domestic lenders – are neutral for economic growth: both for the balance growth path (BGP), and for transitory dynamics. All other parameters of fiscal policy are not neutral. Theoretical results are illustrated with an empirical analysis for Poland based on post-global financial crisis data for the Polish economy (2009–2018). Numerical simulations show that if fiscal policy remains unchanged, Polish economy will converge to the BGP with GDP growing at 2.3%. The best way to accelerate growth is to increase public investment in education. The other budgetary policy instruments are less effective in shaping economic growth. Keywords: optimal fiscal policy; economic growth; human capital; budget deficit; public debt (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:14:y:2022:i:2:p:131-160 Access Statistics for this article More articles in Central European Journal of Economic Modelling and Econometrics from Central European Journal of Economic Modelling and Econometrics |
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