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Productive Government Expenditure and Fiscal Sustainability

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  • Real Arai

Abstract

We consider an overlapping-generations model in which public spending directly contributes to an increase in productivity, as in the model of Barro (1990), and in which the government maintains constant ratios of public spending to GDP and of debt issuance to public spending. We numerically analyze the effects of a change of public-spending/GDP on fiscal sustainability, growth rate, and welfare. First, if that ratio is small, an increase in it makes public debt sustainable. Second, if it is small, then an increase in it is Pareto improving.

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  • Real Arai, 2011. "Productive Government Expenditure and Fiscal Sustainability," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(4), pages 327-351, December.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(291112)67:4_327:pgeafs_2.0.tx_2-3
    DOI: 10.1628/001522108X614150
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    Cited by:

    1. Maebayashi, Noritaka & Hori, Takeo & Futagami, Koichi, 2017. "Dynamic Analysis Of Reductions In Public Debt In An Endogenous Growth Model With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 21(6), pages 1454-1483, September.
    2. 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 University of Manchester.
    3. 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.
    4. Takumi Motoyama, 2019. "Sustainability of public debt under physical and human capital accumulation in an overlapping generations model," Journal of Economics, Springer, vol. 127(1), pages 19-45, June.
    5. Glomm, Gerhard & Jung, Juergen & Tran, Chung, 2018. "Fiscal Austerity Measures: Spending Cuts Vs. Tax Increases," Macroeconomic Dynamics, Cambridge University Press, vol. 22(2), pages 501-540, March.
    6. Noritaka Maebayashi & Kunihiko Konishi, 2016. "Sustainability of the public debt and wealth inequality in a general equilibrium model," Discussion Papers in Economics and Business 16-33, Osaka University, Graduate School of Economics.
    7. Takaaki Morimoto & Yuta Nakabo & Ken Tabata, 2016. "Population Aging, Fiscal Sustainability and PAYG Pension Reform," Discussion Paper Series 140, School of Economics, Kwansei Gakuin University, revised Feb 2016.
    8. Noritaka Maebayashi & Jumpei Tanaka, 2022. "Limited asset market participation and fiscal sustainability," Journal of Economics, Springer, vol. 137(1), pages 1-31, September.
    9. 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.
    10. Miyazawa, Kazutoshi & Ogawa, Hikaru & Tamai, Toshiki, 2019. "Capital market integration and fiscal sustainability," European Economic Review, Elsevier, vol. 120(C).
    11. repec:dau:papers:123456789/4341 is not listed on IDEAS
    12. Takumi Motoyama, 2017. "Fiscal sustainability under physical and human capital accumulation in an overlapping generations model," Discussion Papers in Economics and Business 17-05, Osaka University, Graduate School of Economics.
    13. Real Arai & Takuma Kunieda & Keigo Nishida, 2014. "Is Public Debt Growth-Enhancing or Growth-Reducing?," KIER Working Papers 884, Kyoto University, Institute of Economic Research.
    14. Atsumasa Kondo, 2016. "Sustainability of Public Debt in an AK Model with Complex Tax System," Discussion Papers CRR Discussion Paper Series A: General 21, Shiga University, Faculty of Economics,Center for Risk Research.
    15. Atsumasa Kondo, 2016. "Interconnection of Fiscal Policies on Sustainability of Public Debt," Discussion Papers CRR Discussion Paper Series A: General 20, Shiga University, Faculty of Economics,Center for Risk Research.
    16. Arai, Real & Ueda, Junji, 2013. "A numerical evaluation of the sustainable size of the primary deficit in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 59-75.
    17. Kazutoshi Miyazawa & Hikaru Ogawa & Toshiki Tamai, 2018. "Tax Competition and Fiscal Sustainability," CIRJE F-Series CIRJE-F-1103, CIRJE, Faculty of Economics, University of Tokyo.
    18. Yakita, Akira, 2014. "Involuntary unemployment and sustainability of bond-financed fiscal deficit," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 79-93.
    19. Maebayashi, Noritaka, 2021. "The pace of fiscal consolidations, fiscal sustainability, and welfare: An overlapping generations approach," MPRA Paper 112593, University Library of Munich, Germany, revised 30 Feb 2022.

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    More about this item

    Keywords

    fiscal sustainability; welfare; productive government spending; public debt; endogenous growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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