Public debt and private investment with endogenous government spending

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by
University of Essex, Dept. of Economics , [Colchester]
StatementSaqib Jafarey, Yannis Kaskarelis and ApostolisPhilippopoulos.
SeriesDiscussion paper series / University of Essex, Department of Economics -- no.460
ContributionsKaskarelis, Ioannis A., Philippopoulos, Apostolis.
The Physical Object
Pagination35p. :
ID Numbers
Open LibraryOL20832286M

We analyse the effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy in general violates the intertemporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth by: 5.

We analyze effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy violates the inter-temporal government budget constraint along a balanced growth path.

A balanced government budget gives a unique saddle point stable growth path. With a rule based policy, two saddle point stable balanced growth paths can Cited by: 5.

Abstract. This chapter presents an endogenous growth model with productive public capital and analyzes growth and welfare effects of three different public debt strategies: the balanced government budget, the scenario where public debt grows in the long-run, but at a smaller rate than capital and consumption, and the scenario where public debt grows at the same rate as capital and Cited by: 1.

The purpose of this paper is to assess both short and long-term influences of public investment on economic growth and test the hypothesis that whether public investment promotes or demotes private investment in Vietnam.,The authors use the approach of autoregressive distributed lag model and Vietnam’s macro data in the period ofto evaluate the short and long-term Cited by: 4.

A higher debt ratio leads to a crowding-out of private investment and, thus, to lower long-run growth when the government reduces non-distortionary and non-productive public spending to fulflll its intertemporal budget constraint.

This crowding-out does not occur when the government reduces lump-sum transfers as a consequence of a higher debt ratio. 4Cited by: The share of government investment in total government expenditure is significantly negative to the effects of government investment and public debt on economic growth, implying that a higher share of government investment in total government expenditure may lower the optimal levels of government investment and public by: Turnovsky (, chap.

13), who allowed for public debt in his analysis. He demonstrates that an increase in public investment nanced by higher public debt unambiguously raises the balanced growth rate (p. The reason for that outcome is that public capital stimulates investment and public debt does Public debt and private investment with endogenous government spending book a ect the allocation of resources in the.

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3 ECB Working Paper Series No. October CONTENTS Abstract 4 Non-technical summary 5 1 Introduction 7 2 Model 9 Households 9 Firms 13 Public sector 13 3 Intertemporal equilibrium 14 The economic growth rate 14 Physical capital and public debt 15 4 Simulations 16 Baseline scenario 16 Macroeconomic assumptions 17 Public finance assumptions government investment in a sample of 17 OECD economies since and model simulations, the paper finds that increased public investment raises output, both in the short term and in the long term, crowds in private investment, and reduces unemployment.

Several factors shape the macroeconomic effects of public Size: KB. Start studying Chapter 15 - Fiscal Policy. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Government borrowing always crowds out private investment spending (valid sometimes) The debt-GDP ratio is the government's debt as a percentage of GDP.

We analyze effects of public debt in a basic endogenous growth model with productive public spending.

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We demonstrate that a discretionary policy violates the inter-temporal government budget constraint along a balanced growth path.

A balanced government budget gives a unique saddle point stable growth path. This paper continues the study of endogenous fiscal policy, using a framework where both capital taxes and government spending are determined optimally.

The paper examines the interaction between private investors and fiscal authorities. It specifies the circumstances under which public debt stabilization is based more upon tax increases than government consumption cuts, and shows how private investment.

with tax increases or spending cuts requires sharp macroeconomic adjustments, crowding out private investment and consumption and delaying the growth benefits of public investment.

Covering the gap with domestic borrowing market is not helpful either: higher domestic rates increase the financing challenge.

This study analyzes an endogenous growth model with public capital and public debt under the “golden rule of public finance” which prohibits the government from issuing bonds for nonproductive.

Public debt in a descriptive endogenous growth model Alfred Greiner Abstract In this paper we analyze a descriptive endogenous growth model with public debt. The government can run into debt, but, the primary surplus is a positive function of the debt to GDP ratio such that the debt ratio becomes a mean-reverting process.

In this paper we analyze an endogenous growth model, in which sustained per capita growth results from investment in public capital and the government is allowed to borrow from the capital : D. Dasgupta. Highlights A basic endogenous growth model with public debt is analyzed. The income tax rate is fixed and public spending is unproductive and non-distortionary.

If public spending is adjusted, a higher debt ratio reduces long-run growth. If public transfers are adjusted, public debt Cited by: This book considers public debt dynamics in various endogenous growth mod­ els, namely the AK model and explicit models of innovation and human cap­ ital accumulation.

Furthermore, the closed economy, the small open economy and a two-country world are Author: Michael Bräuninger. This paper analyzes the relationship between government expenditure, tax on returns to assets, public debt, and growth in an endogenous growth model.

Public debt is composed of two components, domestic debt and external debt. We show conditions for Cited by: 2.

that public investment complements private investment and thus promotes growth [5,6]. Thus, there are two hypotheses. The first is called “golden rule” [7], which states that there is a positive relationship between the public debt and public investment of sub-national governments in Cited by: 2.

debt can only be issued to finance public investment and the optimal level of public debt is determined by the public to private capital ratio that maximizes economic growth.

With such a set-up, they showed that the level of debt that maximizes economic growth is a function of the output elasticity of the capital stock. Downloadable. Author(s): Robert J. Barro. Abstract: I extend existing models of endogenous economic growth to incorporate a government sector.

Production involves private capital (broadly defined) and public services. There is constant returns to scale in the two factors, but diminishing returns to each separately. Public services are financed by a flat- rate income tax. to avoid crowding out private investments and consequently promote economic growth.

Despite these efforts, private investments and economic growth have remained low. This study aimed at finding out the effect public debt on the level of private investment and economic growth in Kenya. The study used time series data from to   Japan is arguably the world’s most indebted major economy, with net public debt at percent of GDP, and yet creditors continue to lend to the Japanese government.

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Japan amassed this public. NBER Program(s):Economic Fluctuations and Growth. I extend existing models of endogenous economic growth to incorporate a government sector. Production involves private capital (broadly defined) and public services. There is constant returns to scale in the two factors, but diminishing returns to each separately.

Public services are financed by. WEALTH EFFECTS AND PUBLIC DEBT IN AN ENDOGENOUS GROWTH MODEL OFCE/POLHIA N° DECEMBER public spending or taxes and public debt: a su fficiently low (high) response of spending (taxes) to a positive shock on public debt is required for sus- the public investment-to-GDPratio, while keeping the debt finance ratio con.

Pension Tracker has collected data from around the nation (calculating) the total market pension debt in California (at) more than $1 trillion, or $78, per household Nationally, Pension Author: Chuck Devore.

This book considers public debt dynamics in various endogenous growth models, namely the AK model and explicit models of innovation and human capital accumulation. Furthermore, the closed economy, the small open economy and a two-country world are analysed.

This paper constructs an endogenous growth model with productive government spending. In this model, the government can finance its costs through income tax and government debt and has a target level of government debt relative to the size of the by: Government debt, also known as public interest, public debt, national debt and sovereign debt, contrasts to the annual government budget deficit, which is a flow variable that equals the difference between government receipts and spending in a single year.

The debt is a stock variable, measured at a specific point in time, and it is the accumulation of all prior deficits. increases in public debt. That gave rise to calls for fiausterityfl, i.e. government spending cuts and tax hikes Œaimed to decrease government debt Œa policy many claimed was necessary to restore ficon–dence.flIt follows that a model of the economy that makes sense.

The government levies a distortionary income tax and issues bonds to finance both lump-sum transfers and non-distortionary public spending. We show that the long-run growth rate is the smaller the higher the debt ratio if the government adjusts public spending to meet its intertemporal budget by: The paper analyses the effect of government expenditure on gross domestic private investment in Nigeria using time series annual data for 34 years.

Multiple regression and cointegration methods were used to analyse the data. Result of the analysed data revealed that the actual impact of government expenditure on private investment varies.