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: Faculty of Economics and Business Administration, The University of Kitakyushu
Takeo Hori: College of Economics, Aoyama Gakuin University

No 12-08-Rev.3, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We construct an endogenous growth model that includes productive public capital and government debt. We assume that the government debt-to-GDP ratio is grad- ually adjusted to a target level, re ecting the permanent commitment rules in the Stability and Growth Pact or the Maastricht Treaty in the EU (i.e., the well-known 60% rule). These rules affect government borrowing and public investment. Here, we examine the welfare implications of the permanent commitment rules. We nd that scal consolidation based on the rules improves social welfare. Moreover, the improvement in welfare accelerates as scal consolidation progresses more rapidly. Lastly, we also discuss and derive the optimal long-run debt-to-GDP ratio.

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: 34 pages
Date: 2012-04, Revised 2015-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://www2.econ.osaka-u.ac.jp/library/global/dp/1208R3.pdf (application/pdf)

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 (2014)
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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