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Golden Rule of Public Finance: A Panacea?

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Author Info
M Ismihan
G Ozkan
Abstract

This 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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File URL: http://www.york.ac.uk/depts/econ/documents/dp/0819.pdf
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Publisher Info
Paper provided by Department of Economics, University of York in its series Discussion Papers with number 08/19.

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Date of creation: Jul 2008
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Handle: RePEc:yor:yorken:08/19

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Related research
Keywords: 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

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This page was last updated on 2009-12-1.

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