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The Impact of Simple Fiscal Rules in Growth Models with Public Goods and Congestion

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Author Info
Sugata Ghosh ()
Charles Nolan ()

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Abstract

In this paper we examine the implication of a simple class of fiscal rules for long-run economic growth and welfare. The golden rule of public finance (GRPF) that we examine is motivated by institutional arrangements in countries such as Germany and the UK. We find that rules which seek to limit government borrowing to productive investment spending have a clear justification in terms of growth and welfare when government provided goods are otherwise excessively provided. Even in the case where it is private consumption that is excessive, the GRPF is likely to be good from a growth perspective, but the welfare effects are more ambiguous.

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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 0502.

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Date of creation: Jan 2005
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Handle: RePEc:san:cdmawp:0502

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  1. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  1. P R Agénor & D Yilmaz, 2006. "The Tyranny of Rules: Fiscal Discipline, Productive Spending, and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 73, Economics, The Univeristy of Manchester. [Downloadable!]
  2. Groneck, Max, 2008. "A Golden Rule of Public Finance or a Fixed Deficit Regime? Growth and Welfare Effects of Budget Rules," FiFo-CPE Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-7, University of Cologne, CPE - Cologne Center for Public Economics. [Downloadable!]
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