Fiscal sustainability and public debt in an endogenous growth model
This paper investigates fiscal sustainability in an overlapping generations economy with endogenous growth coming from human capital formation through educational spending. We assess how budgetary imbalances affect economic dynamics and the outlook for economic growth, thereby providing a rationale for fiscal rules ensuring sustainability. Our results show that the appropriate response of fiscal policy to temporary shocks is not trivial in the absence of fiscal rules. Fiscal rules allow for a timely reaction, thereby avoiding possibly disruptive fiscal adjustment in the future: the more adjustment is delayed, the larger is its necessary scale. We perform a rough calibration of the model to simulate the effects of a demographic shock (change in the population growth rate) under different fiscal policy scenarios. JEL Classification: E62, H63, H55, O41, E17
|Date of creation:||Oct 2004|
|Date of revision:|
|Contact details of provider:|| Postal: 60640 Frankfurt am Main, Germany|
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmitt-Grohé, Stephanie & Uribe, Martín, 2004.
"Optimal Simple and Implementable Monetary and Fiscal Rules,"
CEPR Discussion Papers
4334, C.E.P.R. Discussion Papers.
- Schmitt-Grohe, Stephanie & Uribe, Martin, 2007. "Optimal simple and implementable monetary and fiscal rules," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1702-1725, September.
- Stephanie Schmitt-Grohe & Martin Uribe, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," NBER Working Papers 10253, National Bureau of Economic Research, Inc.
- Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," FRB Atlanta Working Paper 2007-24, Federal Reserve Bank of Atlanta.
- Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994.
"Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption,"
Journal of Monetary Economics,
Elsevier, vol. 34(3), pages 297-323, December.
- Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
- Gian-Maria Milesi-Ferretti, 2000.
"Good, Bad or Ugly?on the Effects of Fiscal Rules with Creative Accounting,"
IMF Working Papers
00/172, International Monetary Fund.
- Milesi-Ferretti, Gian Maria, 2004. "Good, bad or ugly? On the effects of fiscal rules with creative accounting," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 377-394, January.
- Milesi-Ferretti, Gian Maria, 2001. "Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting," CEPR Discussion Papers 2663, C.E.P.R. Discussion Papers.
- Michel, Philippe & Thibault, Emmanuel & Vidal, Jean-Pierre, 2004.
"Intergenerational altruism and neoclassical growth models,"
Working Paper Series
0386, European Central Bank.
- Michel, Philippe & Thibault, Emmanuel & Vidal, Jean-Pierre, 2006. "Intergenerational altruism and neoclassical growth models," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
- Willem H. Buiter, 2003. "Ten Commandments for a Fiscal Rule in the E(M)U," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 84-99.
- Rankin, Neil & Roffia, Barbara, 1999.
"Maximum Sustainable Government Debt in the Overlapping Generations Model,"
CEPR Discussion Papers
2076, C.E.P.R. Discussion Papers.
- Neil Rankin & Barbara Roffia, 2003. "Maximum Sustainable Government Debt in the Overlapping Generations Model," Manchester School, University of Manchester, vol. 71(3), pages 217-241, 06.
- Rankin, N. & Roffia, B., 1999. "Maximum Sustainable Government Debt in the Overlapping Generations Model," The Warwick Economics Research Paper Series (TWERPS) 521, University of Warwick, Department of Economics.
- David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," Review of Economic Studies, Oxford University Press, vol. 32(3), pages 233-240.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Annicchiarico, Barbara & Giammarioli, Nicola, 2004. "Fiscal rules and sustainability of public finances in an endogenous growth model," Working Paper Series 0381, European Central Bank.
- Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20040395. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)
If references are entirely missing, you can add them using this form.