Debt-financed fiscal policy, public capital, and endogenous growth

Takefumi Hagiwara

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the conflicting effects of a debt-financed fiscal policy on endogenous growth in an overlapping generations model with public capital and debt. Although an accumulation of public capital enhances the production efficiency of private capital, it also impedes private capital accumulation by distorting savings allocations through public debt issuance. With a low deficit ratio, the fiscal policy brings new equilibria to an unstable economy. Meanwhile, a debt-financed fiscal policy with a higher deficit ratio causes a fiscal collapse and secular stagnation.

Keywords: Fiscal Sustainability; Public Debt; Public Capital; Secular Stagnation (search for similar items in EconPapers)
JEL-codes: E62 H54 H62 O40 (search for similar items in EconPapers)
Date: 2024-02-17
New Economics Papers: this item is included in nep-dge, nep-gro and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:120201

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