Advanced Search
MyIDEAS: Login to save this paper or follow this series

Dynamic analysis of reductions in public debt in an endogenous growth model with public capital

Contents:

Author Info

  • Noritaka Maebayashi

    ()
    (Graduate School of Economics, Osaka University)

  • Takeo Hori

    ()
    (College of Economics, Aoyama Gakuin University)

  • Koichi Futagami

    ()
    (Graduate School of Economics, Osaka University)

Abstract

We construct an endogenous growth model with productive public capital and government debt when government debt is adjusted to the target level. We examine how reducing public debt in an economy with a large public debt affects the transition of the economy and welfare. We find that the government faces the following trade off when reducing its debt. In the short run, public investment is reduced to decrease the debt and this has a negative effect on welfare. However, as the interest payments on the debt decrease, public investment begins to increase. Eventually, the government can increase the amount of public investment by more than before. This has a positive effect on welfare, implying that reducing the debt is welfare improving. Furthermore, we find that the adjustment speed of reductions in debt affects welfare crucially. The relationships between the welfare gains and the adjustment speed are U-shaped in many cases. However, they are decreasing monotonically when the tax rate is low and the initial debt?GDP ratio is sufficiently large.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 12-08.

as in new window
Length: 36 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:osk:wpaper:1208

Contact details of provider:
Email:
Web page: http://www.econ.osaka-u.ac.jp/
More information through EDIRC

Related research

Keywords: Reductions in public debt; Debt policy rule; Public capital; Endogenous Growth;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Greiner, Alfred & Semmler, Willi, 2000. "Endogenous Growth, Government Debt and Budgetary Regimes," Journal of Macroeconomics, Elsevier, vol. 22(3), pages 363-384, July.
  2. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
  3. G Mez, Manuel A., 2004. "Optimal Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 8(04), pages 419-435, September.
  4. Ghosh, Sugata & Mourmouras, Iannis A., 2004. "Endogenous growth, welfare and budgetary regimes," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 623-635, December.
  5. Trimborn, Timo & Koch, Karl-Josef & Steger, Thomas M., 2008. "Multidimensional Transitional Dynamics: A Simple Numerical Procedure," Macroeconomic Dynamics, Cambridge University Press, vol. 12(03), pages 301-319, June.
  6. Coenen, Günter & Mohr, Matthias & Straub, Roland, 2008. "Fiscal consolidation in the euro area: long-run benefits and short-run costs," Working Paper Series 0902, European Central Bank.
  7. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  8. Minea, Alexandru & Villieu, Patrick, 2013. "Debt Policy Rule, Productive Government Spending, And Multiple Growth Paths: A Note," Macroeconomic Dynamics, Cambridge University Press, vol. 17(04), pages 947-954, June.
  9. Jang-Ting Guo & Sharon G. Harrison, 2008. "Useful Government Spending and Macroeconomic (In)stability under Balanced-Budget Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(3), pages 383-397, 06.
  10. Yakita, Akira, 2008. "Sustainability of public debt, public capital formation, and endogenous growth in an overlapping generations setting," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 897-914, April.
  11. Akira Yakita, 2008. "Ageing and public capital accumulation," International Tax and Public Finance, Springer, vol. 15(5), pages 582-598, October.
  12. Agénor, Pierre-Richard, 2008. "Health and infrastructure in a model of endogenous growth," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1407-1422, December.
  13. Ni, Shawn, 1995. "An empirical analysis on the substitutability between private consumption and government purchases," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 593-605, December.
  14. Papageorgiou, Dimitris, 2012. "Fiscal policy reforms in general equilibrium: The case of Greece," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 504-522.
  15. Bruce, Neil & Turnovsky, Stephen J, 1999. "Budget Balance, Welfare, and the Growth Rate: "Dynamic Scoring" of the Long-Run Government Budget," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 162-86, May.
  16. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  17. Arai, Real, 2008. "Productive government expenditure and fiscal sustainability," MPRA Paper 8553, University Library of Munich, Germany.
  18. Akira Kamiguchi & Toshiki Tamai, 2012. "Are Fiscal Sustainability And Stable Balanced Growth Equilibrium Simultaneously Attainable?," Metroeconomica, Wiley Blackwell, vol. 63(3), pages 443-457, 07.
  19. Greiner, Alfred, 2008. "Human capital formation, public debt and economic growth," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 415-427, March.
  20. Kalaitzidakis, Pantelis & Kalyvitis, Sarantis, 2004. "On the macroeconomic implications of maintenance in public capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 695-712, March.
  21. 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.
  22. Turnovsky, Stephen J., 1997. "Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 1(03), pages 615-639, September.
  23. 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.
  24. Greiner, Alfred, 2012. "Public debt in a basic endogenous growth model," Economic Modelling, Elsevier, vol. 29(4), pages 1344-1348.
  25. Forni, Lorenzo & Gerali, Andrea & Pisani, Massimiliano, 2010. "The macroeconomics of fiscal consolidations in euro area countries," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1791-1812, September.
  26. Futagami, Koichi & Iwaisako, Tatsuro & Ohdoi, Ryoji, 2008. "Debt Policy Rule, Productive Government Spending, And Multiple Growth Paths," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 445-462, September.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:osk:wpaper:1208. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Atsuko SUZUKI).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.