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Productive Government Expenditure and Fiscal Sustainability

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  • Real Arai

Abstract

We consider an overlapping-generations model in which public spending directly contributes to an increase in productivity, as in the model of Barro (1990), and in which the government maintains constant ratios of public spending to GDP and of debt issuance to public spending. We numerically analyze the effects of a change of public-spending/GDP on fiscal sustainability, growth rate, and welfare. First, if that ratio is small, an increase in it makes public debt sustainable. Second, if it is small, then an increase in it is Pareto improving.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 67 (2011)
Issue (Month): 4 (December)
Pages: 327-351

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(291112)67:4_327:pgeafs_2.0.tx_2-3

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Keywords: fiscal sustainability; welfare; productive government spending; public debt; endogenous growth;

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References

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  1. 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.
  2. Robert J. Barro, 1991. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  3. 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.
  4. Neil Rankin & Barbara Roffia, 2003. "Maximum Sustainable Government Debt in the Overlapping Generations Model," Manchester School, University of Manchester, vol. 71(3), pages 217-241, 06.
  5. Futagami, Koichi & Shibata, Akihisa, 1998. "Budget Deficits and Economic Growth," Public Finance = Finances publiques, , vol. 53(3-4), pages 331-54.
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Citations

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Cited by:
  1. 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.
  2. Gerhard Glomm & Juergen Jung & Chung Tran, 2013. "Fiscal Austerity Measures: Spending Cuts vs. Tax Increases," Working Papers 2013-01, Towson University, Department of Economics, revised Aug 2013.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

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