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Balanced Government Budgets versus Deficit Finance in a Growth Economy

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  • Shawn Ni
  • Xinghe Wang

Abstract

This paper analyzes the effects of balanced-budgets and deficit-finance policies on the resulting steady-state capital stock in a simple neoclassical growth model. It is shown that the steady-state capital stock may be higher or lower if the government is required to balance its budget in each period than if it uses deficit finance, depending on the level of the initial capital stock and the curvature of the utility function of the representative agent.

Suggested Citation

  • Shawn Ni & Xinghe Wang, 1995. "Balanced Government Budgets versus Deficit Finance in a Growth Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 1120-1134, November.
    • Handle: RePEc:cje:issued:v:28:y:1995:i:4b:p:1120-34
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    Cited by:

    1. Kersten Kellermann, 2008. "Should mobile capital pay for public infrastructure investment?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(2), pages 129-143, April.
    2. Kellermann, Kersten, 2007. "Debt financing of public investment: On a popular misinterpretation of "the golden rule of public sector borrowing"," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1088-1104, December.

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