Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

  • Groneck, Max
Registered author(s):

    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. --

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://econstor.eu/bitstream/10419/27680/1/FiFo-CPE-DP_08-07.pdf
    Download Restriction: no

    Bibliographic Info

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

    as in new window
    Length:
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:zbw:uoccpe:7450

    Contact details of provider:
    Postal: Postfach 13 01 36, 50495 Köln
    Phone: (0)221 / 13 97 51 0
    Fax: (0)221 / 13 97 51 11
    Email:
    Web page: http://www.fifo-koeln.de/
    More information through EDIRC

    Related research

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

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. P R Agénor & D Yilmaz, 2006. "The Tyranny of Rules: Fiscal Discipline, Productive Spending, and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 73, Economics, The Univeristy of Manchester.
    2. Devereux, Michael B & Love, David R F, 1995. "The Dynamic Effects of Government Spending Policies in a Two-Sector Endogenous Growth Model," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(1), pages 232-56, February.
    3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
    4. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(4), pages 747-786, May.
    5. Ward Romp & Jakob de Haan, 2007. "Public Capital and Economic Growth: A Critical Survey," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 8(s1), pages 6-52, 04.
    6. Baier, Scott L. & Glomm, Gerhard, 2001. "Long-run growth and welfare effects of public policies with distortionary taxation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(12), pages 2007-2042, December.
    7. Ghosh, Sugata & Mourmouras, Iannis A., 2004. "Endogenous growth, welfare and budgetary regimes," Journal of Macroeconomics, Elsevier, Elsevier, vol. 26(4), pages 623-635, December.
    8. Karl-Josef Koch & Timo Trimborn & Thomas M. Steger, 2005. "Multi-Dimensional Transitional Dynamics: A Simple Numerical Procedure," Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 121-05, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    9. Stephen Turnovsky, 1998. "Fiscal Policy, Elastic Labor Supply, and Endogenous Growth," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 0068, Department of Economics at the University of Washington.
    10. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers, International Monetary Fund 162, International Monetary Fund.
    11. Biederman, Daniel K. & Goenner, Cullen F., 2008. "A life-cycle approach to the intertemporal elasticity of substitution," Journal of Macroeconomics, Elsevier, Elsevier, vol. 30(1), pages 481-498, March.
    12. Sugata Ghosh & Iannis A. Mourmouras, 2004. "Debt, Growth and Budgetary Regimes," Bulletin of Economic Research, Wiley Blackwell, Wiley Blackwell, vol. 56(3), pages 241-250, 07.
    13. Lee, Jisoon, 1992. "Optimal size and composition of government spending," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 423-439, December.
    14. Marco Buti & Sylvester Eijffinger & Daniele Franco, 2003. "Revisiting the Stability and Growth Pact: grand design or internal adjustment?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 180, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    15. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 177-200, March.
    16. Poterba, James M., 1995. "Balanced Budget Rules and Fiscal Policy: Evidence From the States," National Tax Journal, National Tax Association, vol. 48(3), pages 329-36, September.
    17. Greiner, Alfred & Semmler, Willi, 2000. "Endogenous Growth, Government Debt and Budgetary Regimes," Journal of Macroeconomics, Elsevier, Elsevier, vol. 22(3), pages 363-384, July.
    18. Hyun Park, 2006. "Expenditure Composition and Distortionary Tax for Equitable Economic Growth," IMF Working Papers, International Monetary Fund 06/165, International Monetary Fund.
    19. Devarajan, Shantayanan & Danyang, Xie & Zou, Heng-fu, 1998. "Should public capital be subsidized or provided?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 41(2), pages 319-331, April.
    20. Sugata Ghosh & Charles Nolan, 2007. "The Impact Of Simple Fiscal Rules In Growth Models With Public Goods And Congestion," Manchester School, University of Manchester, University of Manchester, vol. 75(5), pages 634-651, 09.
    21. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4220, C.E.P.R. Discussion Papers.
    22. Marco Buti, 2006. "Will the new stability and growth pact succeed? An economic and political perspective," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 241, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    23. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 95(4), pages 607-25, December.
    24. Atolia, Manoj & Chatterjee, Santanu & Turnovsky, Stephen J., 2010. "How misleading is linearization? Evaluating the dynamics of the neoclassical growth model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1550-1571, September.
    25. Park, Hyun & Philippopoulos, Apostolis, 2004. "Indeterminacy and fiscal policies in a growing economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(4), pages 645-660, January.
    26. Mintz, Jack M. & Smart, Michael, 2006. "Incentives for public investment under fiscal rules," Policy Research Working Paper Series 3860, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:zbw:uoccpe:7450. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.