We analyse the effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy in general violates the intertemporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth path. With a rule-based policy, two saddle point stable balanced growth paths can occur, depending on the intertemporal elasticity of substitution of consumption and on the primary surplus policy. Higher debt goes along with smaller long-run growth and we derive a condition such that a deficit-financed increase in public spending raises the growth rate."> We analyse the effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy in general violates the intertemporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth path. With a rule-based policy, two saddle point stable balanced growth paths can occur, depending on the intertemporal elasticity of substitution of consumption and on the primary surplus policy. Higher debt goes along with smaller long-run growth and we derive a condition such that a deficit-financed increase in public spending raises the growth rate."> We analyse the effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy in general violates the int">
[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/bla/jecrev/v66y2015i4p520-535.html
   My bibliography  Save this article

Public Debt, Productive Public Spending and Endogenous Growth

Author

Listed:
  • Alfred Greiner
Abstract
type="main"> We analyse the effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy in general violates the intertemporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth path. With a rule-based policy, two saddle point stable balanced growth paths can occur, depending on the intertemporal elasticity of substitution of consumption and on the primary surplus policy. Higher debt goes along with smaller long-run growth and we derive a condition such that a deficit-financed increase in public spending raises the growth rate.

Suggested Citation

  • Alfred Greiner, 2015. "Public Debt, Productive Public Spending and Endogenous Growth," The Japanese Economic Review, Japanese Economic Association, vol. 66(4), pages 520-535, December.
    • Handle: RePEc:bla:jecrev:v:66:y:2015:i:4:p:520-535
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/jere.12077
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Checherita-Westphal, Cristina & Rother, Philipp, 2010. "The impact of high and growing government debt on economic growth: an empirical investigation for the euro area," Working Paper Series 1237, European Central Bank.
    2. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," Economic Journal, Royal Economic Society, vol. 0, pages 4-30, February.
    3. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
    4. Jaejoon Woo & Manmohan S. Kumar, 2015. "Public Debt and Growth," Economica, London School of Economics and Political Science, vol. 82(328), pages 705-739, October.
    5. Alfred Greiner, 2008. "Does it Pay to Have a Balanced Government Budget?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 460-476, September.
    6. Havranek, Tomas & Horvath, Roman & Irsova, Zuzana & Rusnak, Marek, 2015. "Cross-country heterogeneity in intertemporal substitution," Journal of International Economics, Elsevier, vol. 96(1), pages 100-118.
    7. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    8. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    9. Ugo Panizza & Andrea F. Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(II), pages 175-204, June.
    10. Futagami, Koichi & Iwaisako, Tatsuro & Ohdoi, Ryoji, 2008. "Debt Policy Rule, Productive Government Spending, And Multiple Growth Paths," Macroeconomic Dynamics, Cambridge University Press, vol. 12(4), pages 445-462, September.
    11. Alfred Greiner, 2013. "Debt and growth: Is there a non-monotonic relation?," Economics Bulletin, AccessEcon, vol. 33(1), pages 340-347.
    12. Fabrizio Balassone & Maura Francese & Angelo Pace, 2011. "Public Debt and Economic Growth in Italy," Quaderni di storia economica (Economic History Working Papers) 11, Bank of Italy, Economic Research and International Relations Area.
    13. Akira Kamiguchi & Toshiki Tamai, 2012. "Are Fiscal Sustainability And Stable Balanced Growth Equilibrium Simultaneously Attainable?," Metroeconomica, Wiley Blackwell, vol. 63(3), pages 443-457, July.
    14. Cristina Checherita-Westphal & Andrew Hughes Hallett & Philipp Rother, 2014. "Fiscal sustainability using growth-maximizing debt targets," Applied Economics, Taylor & Francis Journals, vol. 46(6), pages 638-647, February.
    15. Alfred Greiner & Uwe Köller & Willi Semmler, 2007. "Debt sustainability in the European Monetary Union: Theory and empirical evidence for selected countries," Oxford Economic Papers, Oxford University Press, vol. 59(2), pages 194-218, April.
    16. Fincke, Bettina & Greiner, Alfred, 2011. "Do large industrialized economies pursue sustainable debt policies? A comparative study for Japan, Germany and the United States," Japan and the World Economy, Elsevier, vol. 23(3), pages 202-213.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gautam Negi, 2021. "Fiscal Impulse And Sectoral Output €“ Evidence From Indian States," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 28, pages 151-167, December.
    2. Hiraga, Kazuki, 2016. "Fiscal stabilization rule and overlapping generations," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 313-324.
    3. Atsumasa Kondo, 2016. "Sustainability of Public Debt in an AK Model with Complex Tax System," Discussion Papers CRR Discussion Paper Series A: General 21, Shiga University, Faculty of Economics,Center for Risk Research.
    4. Maebayashi, Noritaka, 2024. "Sustainability of public debt, investment subsidies, and endogenous growth with heterogeneous firms and financial frictions," MPRA Paper 120884, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maria Manuel Campos & Cristina Checherita-Westphal, 2019. "Economic consequences of high public debt and challenges ahead for the euro area," Working Papers o201904, Banco de Portugal, Economics and Research Department.
    2. Bettina Fincke & Alfred Greiner, 2015. "On the relation between public debt and economic growth: an empirical investigation," Economics and Business Letters, Oviedo University Press, vol. 4(4), pages 137-150.
    3. İbrahim Özmen & Mihai Mutascu, 2024. "Public Debt and Growth: New Insights," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 8706-8736, June.
    4. Panizza, Ugo & Fatás, Antonio & Ghosh, Atish R. & ,, 2019. "The Motives to Borrow," CEPR Discussion Papers 13735, C.E.P.R. Discussion Papers.
    5. Philipp Heimberger, 2021. "Do Higher Public Debt Levels Reduce Economic Growth?," wiiw Working Papers 211, The Vienna Institute for International Economic Studies, wiiw.
    6. Paulo Brito, 2017. "Government Debt, Fiscal Rules and Singular Growth Dynamics," Dynamic Modeling and Econometrics in Economics and Finance, in: Bettina Bökemeier & Alfred Greiner (ed.), Inequality and Finance in Macrodynamics, pages 43-74, Springer.
    7. Ueshina, Mitsuru, 2018. "The effect of public debt on growth and welfare under the golden rule of public finance," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 1-11.
    8. Bitar, Nicholas & Chakrabarti, Avik & Zeaiter, Hussein, 2018. "Were Reinhart and Rogoff right?," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 614-620.
    9. Alfred Greiner & Peter Flaschel, 2010. "Public Debt And Public Investment In An Endogenous Growth Model With Real Wage Rigidities," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 68-84, February.
    10. Alfred Greiner, 2015. "Fiscal and Monetary Policy in a Basic Endogenous Growth Model," Computational Economics, Springer;Society for Computational Economics, vol. 45(2), pages 285-301, February.
    11. Cuong Le Van & Phu Nguyen‐Van & Amélie Barbier‐Gauchard & Duc‐Anh Le, 2019. "Government expenditure, external and domestic public debt, and economic growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(1), pages 116-134, February.
    12. Eberhardt, Markus & Presbitero, Andrea F., 2015. "Public debt and growth: Heterogeneity and non-linearity," Journal of International Economics, Elsevier, vol. 97(1), pages 45-58.
    13. Bara, Aman Appolinus & Chakraborty, Bidisha, 2019. "Why should the government provide the infrastructure through the Public-Private Partnership mode?," MPRA Paper 95008, University Library of Munich, Germany.
    14. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2017. "Heterogeneity in the debt-growth nexus: Evidence from EMU countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 470-486.
    15. Alfred Greiner, 2012. "Human capital formation, learning by doing and the government in the process of economic growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(1), pages 71-89, February.
    16. Vicente Esteve & Cecilio Tamarit, 2018. "Public debt and economic growth in Spain, 1851–2013," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 12(2), pages 219-249, May.
    17. Roberto Tamborini & Matteo Tomaselli, 2020. "When does public debt impair economic growth? A literature review in search of a theory," DEM Working Papers 2020/7, Department of Economics and Management.
    18. Kamiguchi, Akira & Tamai, Toshiki, 2023. "Public investment, national debt, and economic growth: The role of debt finance under dynamic inefficiency," Journal of Macroeconomics, Elsevier, vol. 77(C).
    19. Saungweme, Talknice & Odhiambo, Nicholas M, 2019. "Causality between public debt, public debt service and economic growth: Evidence from South Africa," Working Papers 25745, University of South Africa, Department of Economics.
    20. Aldama, Pierre & Creel, Jérôme, 2022. "Real-time fiscal policy responses in the OECD from 1997 to 2018: Procyclical but sustainable?," European Journal of Political Economy, Elsevier, vol. 73(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jecrev:v:66:y:2015:i:4:p:520-535. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/jeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.