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Golden Rule of Public Finance: A Panacea?

Author

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  • M Ismihan
  • G Ozkan

Abstract

This paper shows that adopting a golden rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing, expandingpublic investment is beneficial. Otherwise, both macroeconomic stability and debt sustainability are compromised. As such, we argue that policy-makers should prioritise the productivity of public investment rather than its level.

Suggested Citation

  • M Ismihan & G Ozkan, 2008. "Golden Rule of Public Finance: A Panacea?," Discussion Papers 08/19, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:08/19
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/2008/0819.pdf
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    Cited by:

    1. Bowen, Alex, 2011. "Raising finance to support developing country action: some economic considerations," LSE Research Online Documents on Economics 37572, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    Public investment; public debt; golden rule.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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