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The Impact Of Simple Fiscal Rules In Growth Models With Public Goods And Congestion




In this paper we examine the implication of a simple class of fiscal rules for long-run economic growth and welfare. The Golden Rule of Public Finance that we examine is motivated by institutional arrangements in countries such as Germany and the UK. We find that rules that seek to limit government borrowing to productive investment spending have a clear justification in terms of growth and welfare when government-provided goods are otherwise excessively provided. Even in the case where it is private consumption that is excessive, the Golden Rule of Public Finance is likely to be good from a growth perspective, but the welfare effects are more ambiguous. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd and The University of Manchester.

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  • Sugata Ghosh & Charles Nolan, 2007. "The Impact Of Simple Fiscal Rules In Growth Models With Public Goods And Congestion," Manchester School, University of Manchester, vol. 75(5), pages 634-651, September.
  • Handle: RePEc:bla:manchs:v:75:y:2007:i:5:p:634-651

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    References listed on IDEAS

    1. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
    2. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
    3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
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    Cited by:

    1. Moisa Altar & Judita Samuel, 2008. "The Influence of Fiscal Policy on Economic Growth," Advances in Economic and Financial Research - DOFIN Working Paper Series 7, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
    2. 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 73, Economics, The Univeristy of Manchester.
    3. Mustafa Ismihan & F. Gülçin Özkan, 2012. "The Golden Rule of Public Finance: A Panacea?," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 1(2), pages 1-20, May.
    4. Pierre-Richard Agénor & Devrim Yilmaz, 2012. "Simple Dynamics of Public Debt with Productive Public Goods," Centre for Growth and Business Cycle Research Discussion Paper Series 165, Economics, The Univeristy of Manchester.
    5. Pierre Richard Agénor & Devrim Yilmaz, 2006. "The Tyranny of Rules: Fiscal Discipline, Productive Spending, and Growth," The School of Economics Discussion Paper Series 0616, Economics, The University of Manchester.
    6. Groneck, Max, 2010. "A golden rule of public finance or a fixed deficit regime?: Growth and welfare effects of budget rules," Economic Modelling, Elsevier, vol. 27(2), pages 523-534, March.
    7. Groneck, Max, 2008. "A Golden Rule of Public Finance or a Fixed Deficit Regime? Growth and Welfare Effects of Budget Rules," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-7, University of Cologne, FiFo Institute for Public Economics.

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