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Does the 'Golden Rule of Public Finance' imply a lower long-run growth rate? A clarification

Author

Listed:
  • Alfred Greiner

    (Bielefeld University, 33501 Bielefeld, Germany)

Abstract

In a recent paper Minea and Villieu (2009) assert that the 'golden rule of public finance' implies a lower long-run growth rate than the balanced-budget rule. Their contribution is misleading because it is not the 'golden rule of public finance' that generates their result but rather the fact that public debt grows at the same rate as capital and GDP in the long-run in their paper. In this note we demonstrate that the 'golden rule of public finance' yields the same long-run growth rate as the balanced-budget rule provided that public debt asymptotically grows at a smaller rate than capital and GDP.

Suggested Citation

  • Alfred Greiner, 2010. "Does the 'Golden Rule of Public Finance' imply a lower long-run growth rate? A clarification," Economics Bulletin, AccessEcon, vol. 30(2), pages 975-982.
    • Handle: RePEc:ebl:ecbull:eb-10-00213
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    References listed on IDEAS

    as
    1. Alfred Greiner, 2007. "An Endogenous Growth Model With Public Capital And Sustainable Government Debt," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 345-361, September.
    2. Alexandru Minea & Patrick Villieu, 2009. "Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting," Fiscal Studies, John Wiley & Sons, vol. 30(1), pages 103-133, March.
    3. repec:bla:scandj:v:95:y:1993:i:4:p:607-25 is not listed on IDEAS
    4. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
    5. Alfred Greiner, 2008. "Does it Pay to Have a Balanced Government Budget?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 460-476, September.
    6. Alfred Greiner & Uwe Köller & Willi Semmler, 2007. "Debt sustainability in the European Monetary Union: Theory and empirical evidence for selected countries," Oxford Economic Papers, Oxford University Press, vol. 59(2), pages 194-218, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tamai, Toshiki, 2016. "Public investment, the rate of return, and optimal fiscal policy in a stochastically growing economy," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 1-17.
    2. Kamiguchi, Akira & Tamai, Toshiki, 2019. "Public investment, public debt, and population aging under the golden rule of public finance," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 110-122.
    3. Akira Kamiguchi & Toshiki Tamai, 2017. "Public Investment and Golden Rule of Public Finance in an Overlapping Generations Model," KIER Working Papers 971, Kyoto University, Institute of Economic Research.
    4. Kamiguchi, Akira & Tamai, Toshiki, 2023. "Public investment, national debt, and economic growth: The role of debt finance under dynamic inefficiency," Journal of Macroeconomics, Elsevier, vol. 77(C).
    5. Alfred Greiner, 2016. "Human capital formation and public debt: growth and welfare effects of three different deficit policies," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 19(4), pages 369-385, October.
    6. Alfred Greiner, 2013. "Debt and growth: Is there a non-monotonic relation?," Economics Bulletin, AccessEcon, vol. 33(1), pages 340-347.

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    More about this item

    Keywords

    public debt; inter-temporal budget constraint; golden rule of public finance; public capital;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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