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Sustainability of public debt, public capital formation, and endogenous growth in an overlapping generations setting

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  • Yakita, Akira

Abstract

Under the golden rule of public finance for public investment with a constant budget deficit/GDP ratio, we show that for the sustainability of government budget deficits there is a threshold of the initial public debt for a given stock of public capital, and that this threshold level of public debt is increasing in the stock of public capital. If the initial public debt is greater than the threshold, the government can no longer sustain budget deficits, while if it is smaller, the government can conduct a permanent deficit policy, which eventually leads to a positive public debt/GDP ratio.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 3-4 (April)
Pages: 897-914

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:3-4:p:897-914

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Web page: http://www.elsevier.com/locate/inca/505578

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References

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  1. Yakita, Akira, 2004. "Elasticity of substitution in public capital formation and economic growth," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 391-408, September.
  2. Michael Brauninger, 2005. "The Budget Deficit, Public Debt, and Endogenous Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 827-840, December.
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  7. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
  8. Ghosh, Sugata & Mourmouras, Iannis A., 2004. "Endogenous growth, welfare and budgetary regimes," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 623-635, December.
  9. Fukuda, Shinichi & Teruyama, Hiroshi, 1994. "The Sustainability of Budget Deficits in Japan," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 35(2), pages 109-119, December.
  10. Chalk, Nigel A., 2000. "The sustainability of bond-financed deficits: An overlapping generations approach," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 293-328, April.
  11. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
  12. Evans, Paul & Karras, Georgios, 1994. "Is government capital productive? Evidence from a panel of seven countries," Journal of Macroeconomics, Elsevier, vol. 16(2), pages 271-279.
  13. Alfred Greiner, 2007. "An Endogenous Growth Model With Public Capital And Sustainable Government Debt," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 345-361.
  14. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  15. Greiner, Alfred & Semmler, Willi, 2000. "Endogenous Growth, Government Debt and Budgetary Regimes," Journal of Macroeconomics, Elsevier, vol. 22(3), pages 363-384, July.
  16. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
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Citations

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Cited by:
  1. Greiner, Alfred, 2012. "Public debt in a basic endogenous growth model," Economic Modelling, Elsevier, vol. 29(4), pages 1344-1348.
  2. Noritaka Maebayashi & Takeo Hori & Koichi Futagami, 2012. "Dynamic analysis of reductions in public debt in an endogenous growth model with public capital," Discussion Papers in Economics and Business 12-08-Rev.2, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Jan 2014.
  3. Gerhard Glomm & Juergen Jung & Chung Tran, 2012. "Fiscal Austerity Measures: Spending Cuts vs. Tax Increases," ANU Working Papers in Economics and Econometrics 2012-594, Australian National University, College of Business and Economics, School of Economics.
  4. Real Arai & Takuma Kunieda & Keigo Nishida, 2014. "Is Public Debt Growth-Enhancing or Growth-Reducing?," KIER Working Papers 884, Kyoto University, Institute of Economic Research.
  5. Li, Shiyu & Lin, Shuanglin, 2011. "Is there any gain from social security privatization?," China Economic Review, Elsevier, vol. 22(3), pages 278-289, September.
  6. Ererdem, Ozgür Kaan, 2010. "Public deficit sustainability, public debt and monetization in an endogenous growth model: an application for Turkey," Economics Papers from University Paris Dauphine 123456789/4341, Paris Dauphine University.
  7. Ran Bi & Haonan Qu & James Roaf, 2013. "Assessing the Impact and Phasing of Multi-year Fiscal Adjustment: A General Framework," IMF Working Papers 13/182, International Monetary Fund.
  8. Yasuoka, Masaya & Miyake, Atsushi, 2012. "Public debt, child allowances, and pension benefits with endogenous fertility," Economics Discussion Papers 2012-47, Kiel Institute for the World Economy.
  9. Arai, Real & Ueda, Junji, 2013. "A numerical evaluation of the sustainable size of the primary deficit in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 59-75.
  10. Jérôme Creel & Francesco Saraceno, 2008. "Wealth Effects and Public Debt in an Endogenous Growth Model. Banca d'Italia Public Finance Workshop "Fiscal Sustainability : Analytical Developments and Emerging Policy Issues", Perugia, 3-," Sciences Po publications info:hdl:2441/9644, Sciences Po.
  11. Kunihiko Konishi, 2013. "Public Research Spending in an Endogenous Growth Model," Discussion Papers in Economics and Business 13-26, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  12. Real Arai & Junji Ueda, 2012. "A Numerical Evaluation on a Sustainable Size of Primary Deficit in Japan," Discussion papers ron235, Policy Research Institute, Ministry of Finance Japan.
  13. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
  14. Pierre-Richard Agénor & Devrim Yilmaz, 2012. "Simple Dynamics of Public Debt with Productive Public Goods," Centre for Growth and Business Cycle Research Discussion Paper Series 165, Economics, The Univeristy of Manchester.
  15. Keiichi Morimoto & Takeo Hori & Noritaka Maebayashi & Koichi Futagami, 2013. "Fiscal Sustainability, Macroeconomic Stability, and Welfare under Fiscal Discipline in a Small Open Economy," Discussion Papers in Economics and Business 13-07, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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