Fiscal Policy In An Endogenous Growth Model
AbstractIn a neoclassical growth model, it is possible to make a case for public debt because a balanced growth path may be dynamically inefficient. This paper shows that this possibility no longer holds in an endogenous growth model with constant external returns to capital. It is shown that an increase in public debt reduces the growth rate, so there always exists a future generation that will be harmed, and that a reduction in public debt, although it increases the growth rate, cannot be Pareto-improving--one current generation must be harmed. Copyright 1992, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoPaper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 91-04.
Length: 18 pages
Date of creation: 1991
Date of revision:
Publication status: Published in Quarterly Journal of Economics, 1992, 107 (4), pp. 1243-1260
public debt ; growth rate ; generations ; social welfare;
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