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A Golden Rule of Public Finance or a Fixed Deficit Regime? Growth and Welfare Effects of Budget Rules

Max Groneck

No 08-7, FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge from University of Cologne, FiFo Institute for Public Economics

Abstract: In this paper, we compare growth and welfare e¤ects of various budget rules within an endogenous growth model with productive public capital, utility enhancing public consumption and public debt. We find that a fixed deficit regime does not affect the long run growth rate compared to a balanced budget while the growth rate is increased by a golden rule. Welfare effects are ambiguous. Simulations indicate that economies populated by households who have a strong tendency to smooth consumption should adhere to a balanced budget rather than a golden rule or a fixed deficit rule from a welfare point of view.

Keywords: Budget rules; golden rule of public finance; fiscal policy; endogenous growth; welfare (search for similar items in EconPapers)
JEL-codes: E62 H63 O40 H50 H62 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:uoccpe:7450

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