Public Debt and Economic Growth: A Theoretical Model

Alfred Greiner and Bettina Fincke ()
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Bettina Fincke: Bielefeld University

Chapter Chapter 3 in Public Debt and Economic Growth, 2009, pp 71-82 from Springer

Abstract: Abstract This chapter presents an endogenous growth model with positive externalities of investment and elastic labor supply and analyzes how different debt strategies affect stability and the long-run growth rate. It is demonstrated that the economy is always saddle point stable under a balanced public budget while it is saddle point stable if and only if the primary surplus reacts sufficiently strongly to higher public debt when the government runs permanent deficits. In addition, it is demonstrated that the balanced budget rule always leads to a higher long-run growth rate compared to the situation with permanent public deficits.

Keywords: Public Debt; Debt Ratio; Endogenous Growth Model; Balance Growth Path; Primary Surplus (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-642-01745-2_3

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DOI: 10.1007/978-3-642-01745-2_3

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