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Do balanced-budget rules increase growth?

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  • Stone, Joe

Abstract

This study tests the hypothesis that balanced-budget rules (BBRs) that restrict public borrowing to investments in public infrastructure increase growth by increasing the productivity of debt, either because investments in public infrastructure are more productive than other uses for which states borrow funds or because BBRs lower borrowing costs. Results are based on data at 5-year intervals for 49 US states over the period 1957-2007. The tests strongly support the hypothesis that BBRs increase growth by increasing the productivity of debt and withstand a variety of robustness checks, including alternative lags, exogeneity tests, GMM estimation, a placebo test, and the influence of outliers.

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  • Stone, Joe, 2014. "Do balanced-budget rules increase growth?," MPRA Paper 57605, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57605
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    References listed on IDEAS

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    Cited by:

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    2. Helder Ferreira de Mendonça & Iven Silva Valpassos, 2022. "Combination of economic policies: how the perfect storm wrecked the Brazilian economic growth," Empirical Economics, Springer, vol. 63(3), pages 1135-1157, September.
    3. Goldberg, Andrew & Romalis, John, 2015. "Public Debt and Growth in U.S. States," Working Papers 2015-10, University of Sydney, School of Economics.

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    More about this item

    Keywords

    balanced budget rule; infrastructure; fiscal policy; regional growth;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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