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2017 | OriginalPaper | Buchkapitel

On (Non-)Neutrality of Public Debt in Growing Economies

verfasst von : Alfred Greiner

Erschienen in: Inequality and Finance in Macrodynamics

Verlag: Springer International Publishing

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Abstract

In this paper we analyze effects of public debt on the long-run allocation of resources in a basic endogenous growth model with infinitely lived households. The government levies an income tax and issues government bonds to finance unproductive public spending. We demonstrate that in the case of flexible wages and elastic labour supply the balanced growth rate is the higher the smaller the ratio of public debt to GDP for a given income tax rate. When wages are rigid public debt is neutral in the sense that it does not affect the allocation of resources along the balanced growth path. Finally, in both cases the economy is stable only if the government puts a sufficiently high weight on stabilizing public debt.

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Vorheriges Kapitel Financial Liberalization, Inequality and Inclusion in Low-Income Countries

Nächstes Kapitel Financial Intermediation and Directed Technical Change

Nur mit Berechtigung zugänglich

We abstract from monetary aspects. A model showing how monetary and fiscal policy determine growth and inflation can be found in Greiner and Fincke (2015), Chap. 3

From now on we omit the time argument t if no ambiguity arises.

Of course, GDP grows at the same rate as capital and consumption on a BGP.

Without loss of generality we can set A = 1 in the analytical model what we do in the following.

Recall that the distortionary income tax rate τ is kept fixed.

Again, we set A = 1 in the following analysis without loss of generality.

For β > ( < ) ρ we must set ϕ < ( > ) 0 to get b > 0 on the BGP.

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Titel: On (Non-)Neutrality of Public Debt in Growing Economies
verfasst von: Alfred Greiner
Verlag: Springer International Publishing
Buch: Inequality and Finance in Macrodynamics
Print ISBN: 978-3-319-54689-6

Electronic ISBN: 978-3-319-54690-2

Copyright-Jahr: 2017
DOI: https://doi.org/10.1007/978-3-319-54690-2_5