PERSISTENT DEFICIT, GROWTH, AND INDETERMINACY
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.
Year of publication: |
2012
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Authors: | Minea, Alexandru ; Villieu, Patrick |
Published in: |
Macroeconomic Dynamics. - Cambridge University Press. - Vol. 16.2012, S2, p. 267-283
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Publisher: |
Cambridge University Press |
Description of contents: | Abstract [journals.cambridge.org] |
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