Debt-financed fiscal policy, public capital, and endogenous growth

Hagiwara, Takefumi (2024): Debt-financed fiscal policy, public capital, and endogenous growth.

Abstract

This study investigates the conflicting effects of a debt-financed fiscal policy on endogenous growth in an overlapping generations model with public capital and debt. Although an accumulation of public capital enhances the production efficiency of private capital, it also impedes private capital accumulation by distorting savings allocations through public debt issuance. With a low deficit ratio, the fiscal policy brings new equilibria to an unstable economy. Meanwhile, a debt-financed fiscal policy with a higher deficit ratio causes a fiscal collapse and secular stagnation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal Sustainability; Public Debt; Public Capital; Secular Stagnation
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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