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A Golden Rule of Public Finance or a Fixed Deficit Regime? Growth and Welfare Effects of Budget Rules

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Author Info
Groneck, Max
Abstract

In this paper, we compare growth and welfare e¤ects of various budget rules within an endogenous growth model with productive public capital, utility enhancing public consumption and public debt. We find that a fixed deficit regime does not affect the long run growth rate compared to a balanced budget while the growth rate is increased by a golden rule. Welfare effects are ambiguous. Simulations indicate that economies populated by households who have a strong tendency to smooth consumption should adhere to a balanced budget rather than a golden rule or a fixed deficit rule from a welfare point of view.

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Publisher Info
Paper provided by University of Cologne, CPE - Cologne Center for Public Economics in its series FiFo-CPE Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge with number 08-7.

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Date of creation: 2008
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Handle: RePEc:zbw:uoccpe:7450

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Related research
Keywords: Budget rules; golden rule of public finance; fiscal policy; endogenous growth; welfare;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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