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The Budget Deficit, Public Debt, and Endogenous Growth
Author(s) -
BRÄUNINGER MICHAEL
Publication year - 2005
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2005.00247.x
Subject(s) - economics , endogenous growth theory , deficit spending , debt , monetary economics , public capital , capital (architecture) , debt ratio , macroeconomics , fiscal policy , public investment , human capital , market economy , history , archaeology
This paper analyzes the effects of public debt on endogenous growth in an overlapping generations model. The government fixes the budget deficit ratio. If the deficit ratio stays below a critical level, then there are two steady states where capital, output, and public debt grow at the same constant rate. An increase in the deficit ratio reduces the growth rate. If the deficit ratio exceeds the critical level, then there is no steady state. Capital growth declines continuously, and capital is driven down to zero in finite time.