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Public deficits and economic growth

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  • Afonso, Oscar
  • Alves, Rui Henrique
  • Vasconcelos, Paulo B.

Abstract

Considering an integrated area, this paper deals with the balance between the positive effects in the degree of economic cohesion resulting from R&D subsidies, temporarily granted from an imitator and less developed country, and the external negative effects arising from the eventual creation of excessive public deficits. We propose and numerically solve a model of a monetary union between two countries, one being innovator and the other imitator. Results suggest the pertinence of allowing for a temporary differentiation of fiscal discipline rules in favour of the less developed country. R&D subsidies granted by this country seem to lead to an easier catching-up without producing important negative external effects, also as not hurting severely the conditions for long-run sustainability of public accounts.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 26 (2009)
Issue (Month): 5 (September)
Pages: 1101-1109

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Handle: RePEc:eee:ecmode:v:26:y:2009:i:5:p:1101-1109

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Economic growth R&D subsidies Economic cohesion Public deficits Numerical computations;

References

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  1. Eijffinger, S.C.W. & Buti, M. & Franco, D., 2003. "Revisiting EMU's stability pact: A pragmatic way forward," Open Access publications from Tilburg University urn:nbn:nl:ui:12-111989, Tilburg University.
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  8. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  9. Oscar Afonso & Rui Henrique Alves, 2009. "Endogenous growth and European fiscal rules," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 849-858.
  10. Alessandra Casella, 1999. "Tradable deficit permits:efficient implementation of the Stability Pact in the European Monetary Union," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 321-362, October.
  11. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  12. Kwan, Yum K. & Lai, Edwin L. -C., 2003. "Intellectual property rights protection and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 853-873, March.
  13. Oscar Afonso & Paulo B. Vasconcelos, 2007. "Re-examining International Technological-Knowledge Diffusion," International Economic Journal, Taylor & Francis Journals, vol. 21(2), pages 279-296.
  14. Oscar Afonso, 2006. "Skill-biased technological knowledge without scale effects," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 13-21.
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