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Government expenditure, external and domestic public debts, and economic growth

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  • Duc-Anh Le
  • Cuong Le Van
  • Phu Nguyen-Van
  • Amélie Barbier-Gauchard

Abstract

This paper analyzes the relationship between government expenditure, tax on returns to asset, public debt, and economic growth. Public debt is composed of two components, domestic debt and external debt. We show that an increase in the tax rate on returns to asset leads to an increase in government expenditure, consumption, and domestic debt. However, the impact of tax rate on external debt is unclear. In some situation, in particular when the productivity of capital on production is low (high) and the tax rate is lower (higher) than a threshold, the relation between external debt and the tax rate has a bell-shaped form, i.e. external debt firstly rises then decreases with the tax rate.

Suggested Citation

  • Duc-Anh Le & Cuong Le Van & Phu Nguyen-Van & Amélie Barbier-Gauchard, 2015. "Government expenditure, external and domestic public debts, and economic growth," Working Papers of BETA 2015-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2015-25
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    Cited by:

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    3. Thai Ha‐Huy & Cuong Le Van & Thi‐Do‐Hanh Nguyen, 2020. "Optimal growth when consumption takes time," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1442-1461, September.
    4. Francesco MAGRIS & Daria ONORI, 2020. "Taylor and fiscal rules: when do they stabilize the economy?," LEO Working Papers / DR LEO 2746, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    5. Rima Aloulou & Maha Kalai & Kamel Helali, 2023. "The symmetric and asymmetric impacts of external debt on economic growth in Tunisia: evidence from linear and nonlinear ARDL models," SN Business & Economics, Springer, vol. 3(7), pages 1-28, July.
    6. Manamba EPAPHRA & William MESIET, 2021. "The external debt burden and economic growth in Africa: a panel data analysis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(627), S), pages 175-206, Summer.

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    More about this item

    Keywords

    Taxation; public expenditure; domestic debt; external debt; growth.;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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