Golden Rule of Public Finance: A Panacea?
AbstractThis paper shows that adopting a golden rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing, expandingpublic investment is beneficial. Otherwise, both macroeconomic stability and debt sustainability are compromised. As such, we argue that policy-makers should prioritise the productivity of public investment rather than its level.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 08/19.
Date of creation: Jul 2008
Date of revision:
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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
Phone: (0)1904 323776
Fax: (0)1904 323759
Web page: http://www.york.ac.uk/economics/
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Public investment; public debt; golden rule.;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-MAC-2008-07-20 (Macroeconomics)
- NEP-PUB-2008-07-20 (Public Finance)
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