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An endogenous growth model with public capitaland government borrowing

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  • A. Greiner
  • W. Semmler

Abstract

The paper presents an endogenous growth model with public capital. However, in contrastto recent studies on economic growth and fiscal policy, we allow for capital market borrowingby the government. Since the behavior by the government (composition of expenditureand borrowing) does not follow optimizing rules, we introduce fiscal regimes (rules) whichdefine the behavior of the government. In strict fiscal regimes, government borrowing isused for public investment. In less strict regimes, it can also be used for debt service andpublic investment. In our model variants, government deficit does not necessarily entail alower growth rate of the economy but the growth effects are different according to whichrules are adopted. Moreover, in our context the growth maximizing income tax rate is differentfrom zero. The model, contingent on the fiscal regime prevailing, can exhibit multipleequilibria and local indeterminacy. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • A. Greiner & W. Semmler, 1999. "An endogenous growth model with public capitaland government borrowing," Annals of Operations Research, Springer, vol. 88(0), pages 65-79, January.
    • Handle: RePEc:spr:annopr:v:88:y:1999:i:0:p:65-79:10.1023/a:1018955002563
    DOI: 10.1023/A:1018955002563
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    Cited by:

    1. Nicolas End, 2021. "The Prince and Me A model of Fiscal Credibility," Working Papers halshs-03222115, HAL.
    2. Arnaud Cheron & Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2019. "Growth and Public Debt: What Are the Relevant Trade‐Offs?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 655-682, March.
    3. Semmler, Willi & Ofori, Marvin, 2007. "On poverty traps, thresholds and take-offs," Structural Change and Economic Dynamics, Elsevier, vol. 18(1), pages 1-26, March.
    4. Burret, Heiko T. & Feld, Lars P. & Köhler, Ekkehard A., 2016. "(Un-)Sustainability of Public Finances in German Laender: A Panel Time Series Approach," Economic Modelling, Elsevier, vol. 53(C), pages 254-265.
    5. Koichi Futagami & Takeo Hori & Ryoji Ohdoi, 2010. "Debt Policy and Economic Growth in a Small Open Economy Model with Productive Government Spending," Macroeconomics Working Papers 21875, East Asian Bureau of Economic Research.
    6. Köhler, Ekkehard, 2015. "Fiscal Sustainability in Cross-Dependent Panels: Evidence from the German L nder," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113104, Verein für Socialpolitik / German Economic Association.
    7. Hurlin, Christophe & Minea, Alexandru, 2013. "Is public capital really productive? A methodological reappraisal," European Journal of Operational Research, Elsevier, vol. 228(1), pages 122-130.
    8. Gang Gong & Alfred Greiner & Willi Semmler, 2001. "Growth Effects of Fiscal Policy and Debt Sustainability in the EU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(1), pages 3-19, March.
    9. Greiner, Alfred & Semmler, Willi, 2000. "Endogenous Growth, Government Debt and Budgetary Regimes," Journal of Macroeconomics, Elsevier, vol. 22(3), pages 363-384, July.
    10. Heiko T. Burret & Lars P. Feld & Kö & Ekkehard A. hler, 2014. "Panel Cointegration Tests on the Fiscal Sustainability of German Laender," CESifo Working Paper Series 4929, CESifo.
    11. 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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