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Optimal Economic Growth Using Fiscal and Monetary Policies

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  • Hassan Bougrine
  • Teppo Rakkolainen
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    Abstract

    The literature on growth theory is rich with models attempting to explain growth differences among countries. Several variables have been proposed many of which were found to be positively related to growth. However, a major problem with these models is that the factors explaining growth are endogenously determined by their environment so that a slow-growing or a poor country will find itself helpless because all the crucial variables it has `inherited' are either deficient or inexistent. We propose policyoriented model that empowers (poor or slow-growing) countries in the sense that they can use economic policies to achieve high growth and eliminate the gap of unused productive capacity of society. We demonstrate that such objectives are possible by manipulating some key control variables, namely the rate of interest and the net government spending.

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    Bibliographic Info

    Paper provided by Aboa Centre for Economics in its series Discussion Papers with number 50.

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    Length: 23
    Date of creation: May 2009
    Date of revision:
    Handle: RePEc:tkk:dpaper:dp50

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    Related research

    Keywords: growth; maximization; fiscal policy; interest rates; deficit; money;

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    1. 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.
    2. Hassan Bougrine & Mario Seccareccia, 2002. "Money, Taxes, Public Spending, and the State Within a Circuitist Perspective," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 32(3), pages 58-79, October.
    3. Dutt, Amitava Krishna, 1992. "The Origins of Uneven Development: The Indian Subcontinent," American Economic Review, American Economic Association, vol. 82(2), pages 146-50, May.
    4. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers.
    5. Wynne Goldey & Marc Lavoie, 2007. "Fiscal policy in a stock-flow consistent (SFC) model," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(1), pages 79-100, October.
    6. Oliver Dieckmann, 1996. "Cultural determinants of economic growth: Theory and evidence," Journal of Cultural Economics, Springer, vol. 20(4), pages 297-320, December.
    7. Blanca Sanchez-Robles, 1998. "Infrastructure Investment And Growth: Some Empirical Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 16(1), pages 98-108, 01.
    8. Alice Amsden, 2007. "The Tyranny of Empire: Another View of Development," Challenge, M.E. Sharpe, Inc., vol. 50(5), pages 17-27, October.
    9. Marc Lavoie & Mario Seccareccia, 2006. "The Bank of Canada and the Modern View of Central Banking," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 35(1), pages 44-61, April.
    10. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 363-394, December.
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