Golden Rule of Public Finance: A Panacea?
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.
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