Hostname: page-component-74656f9884-rdgjk Total loading time: 0 Render date: 2026-11-08T23:15:36.542Z Has data issue: false hasContentIssue false
  • English
  • Français

PERSISTENT DEFICIT, GROWTH, AND INDETERMINACY

Published online by Cambridge University Press:  20 April 2012

Alexandru Minea  and
Patrick Villieu
Alexandru Minea*
Affiliation:
CERDI, University of Auvergne
Patrick Villieu
Affiliation:
LEO, University of Orléans
*
Address correspondence to: Alexandru Minea, CERDI (University of Auvergne), 65 Boulevard François Mitterrand, B.P. 320, 63009 Clermont-Ferrand Cedex 1, France; e-mail: alexandru.minea@u-clermont1.fr.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

In this paper, we look for long-run and short-run effects of fiscal deficits on economic growth in an endogenous growth model with productive public spending that may be financed by public deficit and debt. The model shows a multiplicity of long-run balanced growth paths (a high-growth and a low-growth steady state) and a possible indeterminacy of the transition path, which may be consistent with the empirical literature, which exhibits strong nonlinear responses of economic growth to fiscal deficits. Starting from the high-growth steady state, a positive impulse in the deficit ratio exerts an adverse effect on economic growth in the long run, after an initial rise. Starting from the low-growth steady state, the situation may be radically undetermined, and the effect of fiscal deficit impulses is subjected to “optimistic” or “pessimistic” views on public-debt sustainability.

Keywords

DeficitProductive Government SpendingEndogenous GrowthNonlinear Effects of Fiscal PolicyPublic Debt

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Supplement S2: Time-Varying Modeling with Macroeconomic and Financial Data , September 2012 , pp. 267 - 283
Copyright
Copyright © Cambridge University Press 2012

References

REFERENCES

Alesina, Alberto and Perotti, Roberto (1997) Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects. IMF Staff Papers 44, 210–248.CrossRefGoogle Scholar
Barro, Robert (1990) Government spending in a simple model of economic growth. Journal of Political Economy 98, S103–S125.CrossRefGoogle Scholar
Futagami, Koichi, Iwaisako, Tatsuro, and Ohdoi, Ryoji (2008) Debt policy rules, productive government spending, and multiple growth paths. Macroeconomic Dynamics 12, 445–462.CrossRefGoogle Scholar
Giavazzi, Francesco, Japelli, Tullio, and Pagano, Marco (2000) Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries. European Economic Review 44, 1259–1289.CrossRefGoogle Scholar
Greiner, Alfred and Semmler, Willi (2000) Endogenous growth, government debt and budgetary regimes. Journal of Macroeconomics 22, 363–384.CrossRefGoogle Scholar
Groneck, Max (2010) A golden rule of public finance or a deficit regime? Growth and welfare effects of budget rules. Economic Modelling 27, 523–534.CrossRefGoogle Scholar
Krugman, Paul (1991) History versus expectations. Quarterly Journal of Economics 106, 651–667.CrossRefGoogle Scholar
Minea, Alexandru and Villieu, Patrick (2009) Borrowing to finance public investment? The GRPF reconsidered in an endogenous growth setting. Fiscal Studies 30, 103–133.CrossRefGoogle Scholar
Minea, Alexandru and Villieu, Patrick (2010) Endogenous growth, government debt and budgetary regimes, by Greiner, A. and Semmler, W.: A corrigendum. Journal of Macroeconomics 32, 709–711.CrossRefGoogle Scholar
Modigliani, Franco, Fitoussi, Jean-Paul, Moro, Beniamino, Snower, Dennis, Solow, Robert, Steinherr, Alfred, and Labini, Paolo Sylos (1998) An economists' manifesto on unemployment in the European Union. BNL Quarterly Review 206, 327–361.Google Scholar
Oxley, Howard and Martin, John (1991) Controlling government spending and deficits: Trends in the 1980s and prospects for the 1990s. OECD Economic Studies 17, 145–189Google Scholar
Perotti, Roberto (1999) Fiscal policy when things are going badly. Quarterly Journal of Economics 64, 1399–1436.CrossRefGoogle Scholar
Sargent, Thomas and Wallace, Neil (1981) Some unpleasant monetarist arithmetics. Federal Reserve Bank of Minneapolis Quarterly Review 5, 1–17.Google Scholar
Solow, Robert (1956) A contribution to the theory of economic growth. Quarterly Journal of Economics 70, 65–94.CrossRefGoogle Scholar
Yakita, Akira (2008) Sustainability of public debt, public capital formation, and endogenous growth in an overlapping generations setting. Journal of Public Economics 92, 897–914.CrossRefGoogle Scholar