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Sustainable Debt Policy Rules and Growth in a Small Open Economy Model: Is a Balanced Government Budget Worthwhile?

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  • Fabienne Lara Dascher

    (Bielefeld University)

Abstract

In this paper, our objective is to analyze sustainable debt policy rules and economic growth using a model of endogenous economic growth theory. For the government, it is possible to run into debt, but the primary surplus is a positive linear function of the debt-to-GDP ratio which guarantees that public debt is sustainable. We analyze different sustainable debt policies in this small open economy model of endogenous growth with public capital accumulation, as well we take transitions into account. We investigate the characteristics and stability of the steady state, and we analyze the effects on welfare for the different debt policies.

Suggested Citation

  • Fabienne Lara Dascher, 2020. "Sustainable Debt Policy Rules and Growth in a Small Open Economy Model: Is a Balanced Government Budget Worthwhile?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 373-397, September.
    • Handle: RePEc:pal:compes:v:62:y:2020:i:3:d:10.1057_s41294-020-00130-3
    DOI: 10.1057/s41294-020-00130-3
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    More about this item

    Keywords

    Public debt; Fiscal sustainability; Economic growth; Small open economy model;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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