 Public debt and economic growth: what do neoclassical growth models teach us?Ákos Dombi and István Dedák Applied Economics, 2019, vol. 51, issue 29, 3104-3121 Abstract: This paper aims to quantify the crowding-out effect of public debt and the related loss in long-run output in neoclassical growth models. To accomplish this task, we incorporate the government sector into the Ramsey–Cass–Koopmans (RCK) model, the Blanchard model and the Solow model, which differ only in their assumptions concerning the consumption behaviour of households. We also introduce a general framework that is capable of gauging the burden of public debt in a neoclassical world in the case of any type of consumption behaviour. Our results are threefold. First, contrary to the RCK model, public debt reduces long-run output in the Blanchard model and the Solow model, although to a different extent: the crowding-out effect is marginal in the former, whereas it can be very large in the latter. Second, the burden of public debt is country-specific depending crucially on the saving rate and the population growth rate. Finally, in developed countries the upper limit of the output loss related to public debt is moderate at best even if distortionary taxes are taken into account. Date: 2019 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:51:y:2019:i:29:p:3104-3121 Ordering information: This journal article can be ordered from DOI: 10.1080/00036846.2018.1508869 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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