Does it Pay to Have a Balanced Government Budget?
This paper presents an endogenous growth model with public capital and public debt. The primary-surplus-to-GDP ratio is set such that it is a positive function of the debt ratio, which is a necessary condition for the intertemporal budget constraint of the government. The paper studies growth and welfare effects of the model, assuming a balanced government budget, and compares the outcome with the scenario where public debt grows in the long run, but at a smaller rate than capital and consumption, and with the scenario where public debt grows at the same rate as capital and consumption.
Volume (Year): 164 (2008)
Issue (Month): 3 (September)
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