Dynamic analysis of reductions in public debt in an endogenous growth model with public capital

Noritaka Maebayashi (), Takeo Hori () and Koichi Futagami
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Noritaka Maebayashi: Graduate School of Economics, Osaka University
Takeo Hori: College of Economics, Aoyama Gakuin University

No 12-08-Rev.2, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We construct an endogenous growth model with productive public capital and government debt, in which government debt is gradually adjusted to the target level. We examine how the government fs debt reductions affect the transitional dynamics and welfare of the economy. We show that fiscal consolidation has contractionary ef- fects on the economy in the short run, but has positive long-run effects on the growth of key macroeconomic variables. Fiscal consolidation based only on expenditure cuts improves social welfare and attains larger welfare gains than consolidation that com- bines a tax increase with expenditure cuts. Importantly, under fiscal consolidation based only on expenditure cuts, as the size and speed of the debt reduction increase, welfare improves even further.

Keywords: Fiscal consolidation; Debt policy rule; Public capital; Welfare; Endogenous growth (search for similar items in EconPapers)
JEL-codes: E62 H54 H63 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-04, Revised 2014-01
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-mac and nep-pbe
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Related works:
Journal Article: DYNAMIC ANALYSIS OF REDUCTIONS IN PUBLIC DEBT IN AN ENDOGENOUS GROWTH MODEL WITH PUBLIC CAPITAL (2017)
Working Paper: Dynamic analysis of reductions in public debt in an endogenous growth model with public capital (2015)
Working Paper: Dynamic analysis of reductions in public debt in an endogenous growth model with public capital (2013)
Working Paper: Dynamic analysis of reductions in public debt in an endogenous growth model with public capital (2012)
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