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Debts, Deficits and Growth in Interdependent Economies

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Author Info

  • Alogoskoufis, G.S.
  • Van Der Ploeg, F.

Abstract

We investigate the effects of budgetary policies on growth rates, external debt, real interest rates and the stock market valuation of capital in a two-country, overlapping-generations model of endogenous growth. A worldwide rise in the public debt/GDP ratio, or the share of government consumption, reduces savings and growth. They also increase real interest rates and depress the stock market because of the adjustment costs of investment. A relative rise in one country's debt/GDP ratio or its GDP share of government consumption results in a reduction in its ratio of external assets to GDP. Growth rates are equalized unless there are differences in investment adjustment costs or depreciation rates. Per capita output levels do not necessarily converge.

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Bibliographic Info

Paper provided by Tilburg - Center for Economic Research in its series Papers with number 9104.

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Length: 28 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:tilbur:9104

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Postal: TILBURG UNIVERSITY, CENTER FOR ECONOMIC RESEARCH, 5000 LE TILBURG THE NETHERLANDS.
Phone: 31 13 4663050
Fax: 31 13 4663066
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Web page: http://center.uvt.nl/
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Related research

Keywords: debt ; deficit ; economic growth;

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References

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  1. Alogoskoufis, George & van der Ploeg, Frederick, 1990. "On Budgetary Policies and Economic Growth," CEPR Discussion Papers 496, C.E.P.R. Discussion Papers.
  2. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  3. van der Ploeg, Frederick, 1991. "Money and Capital in Interdependent Economies with Overlapping Generations," Economica, London School of Economics and Political Science, vol. 58(230), pages 233-56, May.
  4. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
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Cited by:
  1. Casper Ewijk, 1994. "Growth promoting policies, distribution, and the balance of payments," Journal of Economics, Springer, vol. 60(1), pages 55-80, February.
  2. Klaus Waelde, 1994. "Trade pattern reversal: The role of technological change, factor accumulation and government intervention," International Trade 9403003, EconWPA, revised 06 Apr 1994.

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