 The Golden Rule of Public Finance: A Panacea?Mustafa Ismihan () and Gulcin Ozkan Ekonomi-tek - International Economics Journal, 2012, vol. 1, issue 2, 1-20 Abstract: The fiscal stimulus packages that were put in place in the wake of the recent global financial crisis consisted of massive public investment spending. Moreover, substantial increases in public debt levels in the aftermath of the crisis have highlighted the importance of fiscal discipline and thus the appropriate form of fiscal policy regimes. Motivated by these experiences, this paper provides a comparative assessment of two fiscal regimes: a balancedbudget rule with tax finance and a golden rule with debt finance, with special reference to the level and the efficiency of public investment. We find that, although the golden rule is likely to be more public investment-friendly, adopting a golden rule rather than a balanced-budget rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing expansion of public investment beneficial. As such, we argue that policymakers should prioritize the productivity of public investment, not just its level. Keywords: Public investment; public debt; golden rule; balanced budget rule (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:tek:journl:v:1:y:2012:i:2:p:1-20 Access Statistics for this article Ekonomi-tek - International Economics Journal is currently edited by TEK Secretary More articles in Ekonomi-tek - International Economics Journal from Turkish Economic Association Contact information at EDIRC. |
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