Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting*

Minea, Alexandru; Villieu, Patrick

doi:10.1111/j.1475-5890.2009.00091.x

Cited by 45 publications

(29 citation statements)

References 18 publications

(38 reference statements)

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“…In Gemmell and Kneller (2002) only conditional βconvergence is obtained for this variable over the period 1970-1995. confirming the overall result of the panel analysis. Given that in the early 1990s public investment over GDP was close to 3%, the increased heterogeneity combined with a decreasing share seems at odds with the debate on the revision of the Stability and Growth Pact, aimed at reconsidering the 3% deficit/GDP threshold in the light of a "golden rule" of public finance (Minea and Billeu 2009) and may prove harmful in a longer term perspective (Easterly, Irwin, and Serven 2008).…”

Section: Discussionmentioning

confidence: 99%

Fiscal Convergence in the European Union Before the Crisis

Bertarelli

Censolo

Colombo

2014

Contemporary Economic Policy

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by employing -and -convergence techniques complemented by a time series analysis. Overall our results highlight a distinctive convergence pattern in the European Union. Fiscal discipline leading to a fast convergence of deficit/GDP ratio over the 1990s markedly weakened in the following decade. Nonetheless, after the Euro debut a pronounced convergence in total revenue and total government spending emerges, with different patterns characterizing each expenditure component. Despite this evidence of fiscal harmonization, European treaties failed to attract countries toward a common share of government debt over GDP. (JEL E61, H11, C23)

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Section: Discussionmentioning

confidence: 99%

Fiscal Convergence in the European Union Before the Crisis

Bertarelli

Censolo

Colombo

2014

Contemporary Economic Policy

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“…There is, however, little consensus about the validity of the GRPF. Balassone and Franco [54], Buiter [55], Buti et al [56], and Minea and Villieu [57] question the positive effect of GRPF. Balassone and Franco [54] emphasize that the GRPF will result in a bias towards over-accumulation of physical assets at the expense of health and education expenditures.…”

Section: Public Debt and Economic Growthmentioning

confidence: 99%

Public Debt, Corruption and Sustainable Economic Growth

Kim

2017

Sustainability

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Abstract:There are many studies that look into the relationship between public debt and economic growth. It is hard to find, however, research addressing the role of corruption between these two variables. Noticing this vacancy in current literature, we strive to investigate the effect of corruption on the relationship between public debt and economic growth. For this purpose, the pooled ordinary least squares (OLS), fixed effects models and the dynamic panel generalized method of moments (GMM) models (Arellano-Bond, 1991) are estimated with data of 77 countries from 1990 to 2014. The empirical results show that the interaction term between public debt and corruption is statistically significant. This confirms the hypothesis that the effect of public debt on economic growth is a function of corruption. The sign of the marginal effect is negative in corrupt countries, but public debt enhances economic growth within countries that are not corrupt, i.e., highly transparent.

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“…An asymptotically zero debt to GDP ratio can be obtained either through a balanced government budget or through public deficits that imply a positive growth rate of public debt that, however, is smaller than the growth rate of GDP. Minea and Villieu (2009) also present an endogenous growth model with public capital and public debt and posit that the government is allowed to run deficits only in order to finance public investment, that is the government obeys the 'golden rule of public finance'. They find that a balanced budget rule yields a higher growth rate than an economy where the government runs permanent deficits and, erroneously, conclude that the 'golden rule of public finance' implies a smaller long-run growth rate than the balanced budget rule.…”

Section: Introductionmentioning

confidence: 99%

Debt and Growth: Is There a Non-Monotonic Relation?

Greiner

2012

SSRN Journal

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In this note we theoretically investigate the question of whether the relationship between public debt and economic growth is characterized by an inverse U-shaped functional form. Starting point of our analysis is the paper by Checherita-Westphal et al. (2012) who present an endogenous growth model with public capital and public debt that displays a hump-shaped relation between debt and economic growth. We highlight the mechanism that generates this outcome and we generalize their model by allowing for a more general debt policy. We demonstrate that this nonmonotonic relation only holds if public deficits are exogenously fixed and exactly equal to public investment at each point in time. With a more general debt policy, one realizes that smaller public deficits and lower public debt always lead to a higher balanced growth rate. Thus, starting from a situation where the public deficit equals public investment, governments can raise the long-run growth rate by reducing their deficits. JEL: H60, O23

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Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting*

Cited by 45 publications

References 18 publications

Fiscal Convergence in the European Union Before the Crisis

Fiscal Convergence in the European Union Before the Crisis

Public Debt, Corruption and Sustainable Economic Growth

Debt and Growth: Is There a Non-Monotonic Relation?

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