The Impact of Simple Fiscal Rules in Growth Models with Public Goods and Congestion
In this paper we examine the implication of a simple class of fiscal rules for long-run economic growth and welfare. The golden rule of public finance (GRPF) that we examine is motivated by institutional arrangements in countries such as Germany and the UK. We find that rules which seek to limit government borrowing to productive investment spending have a clear justification in terms of growth and welfare when government provided goods are otherwise excessively provided. Even in the case where it is private consumption that is excessive, the GRPF is likely to be good from a growth perspective, but the welfare effects are more ambiguous.
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- Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
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