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Debt-financed fiscal policy, public capital, and endogenous growth

Author

Listed:
  • Takefumi Hagiwara

    (Graduate School of Economics, Kyoto University)

Abstract

This study investigates the conflicting effects of a debt-financed fiscal policy in an overlapping generations model with public capital and debt. An accumulation of public capital enhances the production efficiency of private capital, whereas it impedes private capital accumulation by distorting savings allocations through public debt issuance. With a low deficit ratio, the fiscal policy brings steady-state equilibria to an unstable economy. Meanwhile, a debt-financed fiscal policy with a higher deficit ratio causes a fiscal collapse and secular stagnation.

Suggested Citation

  • Takefumi Hagiwara, 2025. "Debt-financed fiscal policy, public capital, and endogenous growth," Economics Bulletin, AccessEcon, vol. 45(1), pages 196-209.
    • Handle: RePEc:ebl:ecbull:eb-24-00361
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    File URL: http://www.accessecon.com/Pubs/EB/2025/Volume45/EB-25-V45-I1-P20.pdf
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    More about this item

    Keywords

    Fiscal Sustainability; Public Debt; Public Capital; Secular Stagnation;
    All these keywords.

    JEL classification:

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

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