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Spending and Growth: A Modified Debt to GDP Dynamic Model

  • Camilla Yanushevsky

    ()

    (University of Maryland, Department of Finance, Robert H. Smith School of Business, College Park, 20742, USA)

  • Rafael Yanushevsky

    ()

    (Research & Technology Consulting, 5106 Danbury Rd., Bethesda, MD 20814, USA)

Registered author(s):

    The paper addresses a topical issue – how expansionary fiscal policy affects the debt to GDP ratio. It examines whether the projected future economic growth (stimulated by government spending) is sustained with the resulting national debt. It is discussedif government investment in infrastructure is an effective approach to boost the economy in times of economic downturn. The authors develop the debt to GDP ratio dynamics model and perform a series of simulations (based on US data) to forecast the evolution of the debt to GDP ratio over a 10-year horizon. It is shown that for the data characterizing the current state of the U.S. economy the government investment in infrastructure cannot decrease the debt to GDP ratio.

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    Article provided by Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece in its journal International Journal of Economic Sciences and Applied Research (IJESAR).

    Volume (Year): 6 (2013)
    Issue (Month): 3 (December)
    Pages: 21-33

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    Handle: RePEc:tei:journl:v:6:y:2013:i:3:p:21-33
    Contact details of provider: Web page: http://ijbesar.teiemt.gr/

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    1. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
    2. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
    3. Cassou, Steven P. & Lansing, Kevin J., 1998. "Optimal fiscal policy, public capital, and the productivity slowdown," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 911-935, June.
    4. Alicia H. Munnell & Leah M. Cook, 1990. "How does public infrastructure affect regional economic performance?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 11-33.
    5. Lynde, Catherine & Richmond, J, 1993. "Public Capital and Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 401-14, May.
    6. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
    7. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    8. Kevin J. Lansing, 1998. "Optimal Fiscal Policy in a Business Cycle Model with Public Capital," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 337-364, May.
    9. Hyacinth Eme Ichoku & Chukwuma Agu & John Ele-Ojo Ataguba, 2012. "What do we know about pro-poor growth and regional poverty in Nigeria?," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 5(3), pages 147-172, December.
    10. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates
      [This Time Is Different: Eight Centuries of Financial Folly]
      ," Introductory Chapters, Princeton University Press.
    11. Glomm, Gerhard & Ravikumar, B., 1994. "Public investment in infrastructure in a simple growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1173-1187, November.
    12. Mehmet Aldonat Beyzatlar & Mehmet Yeşim Kuştepeli, 2011. "Infrastructure, Economic Growth and Population Density in Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 4(3), pages 39-57, December.
    13. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
    14. Alan J. Auerbach & Yuriy Gorodnichenko, 2010. "Measuring the Output Responses to Fiscal Policy," NBER Working Papers 16311, National Bureau of Economic Research, Inc.
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