A golden rule of public finance or a fixed deficit regime? Growth and welfare effects of budget rules

Max Groneck*

*Bijbehorende auteur voor dit werk

OnderzoeksoutputAcademicpeer review

16 Citaten (Scopus)

Samenvatting

In this paper, we compare growth and welfare effects of various budget rules within an endogenous growth model with productive public capital, utility enhancing public consumption and public debt. We find that introducing a fixed deficit regime does not affect the long run growth rate compared to a balanced budget while establishing a golden rule results in higher growth. Simulations of welfare effects indicate that a golden rule leads to highest welfare followed by a balanced budget and a fixed deficit regime. A maximum fraction of deficit financed public investment is derived. Varying the intertemporal elasticity of substitution shows that economies populated by households who have a strong tendency to smooth consumption should adhere to a balanced budget from a welfare point of view. (C) 2009 Elsevier B.V. All rights reserved.

Originele taal-2English
Pagina's (van-tot)523-534
Aantal pagina's12
TijdschriftEconomic Modelling
Volume27
Nummer van het tijdschrift2
DOI's
StatusPublished - mrt-2010
Extern gepubliceerdJa

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