Economic growth with incomplete financial discipline

Bessenyei, István and Horváth, Márton (2012): Economic growth with incomplete financial discipline. Published in: Crisis Aftermath: Economic policy changes in the EU and its Member States, Conference Proceedings, Szeged, University of Szeged , Vol. ISBN 9, (2012): pp. 307-314.

Abstract

We introduce soft budget constraint and stop-go policy into a stable two-sector AK macro-model. As the extended model does not have any fixed point, we use computer-simulation to examine the dynamic behaviour of the model. We show that depending on the starting position and the parameter values, the economy can follow a path leading to the collapse or moves oscillatory avoiding the downfall. Further on, we demonstrate that the partial shortage of financial discipline leads to wrong investment decisions which slow the process of capital accumulation. The macroeconomic path directed to the collapse can be reversed by strengthening the financial discipline, keeping down corruption, modification of preferences in investment policy or exogenous technological change.

• Item Type: MPRA Paper
• Language: English
• Keywords: chaotic dynamics; simulation; bribe
• Subjects: H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures ; Other Public Investment and Capital Stock; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy

References

Acemoglu, D. – Verdier, T. (2000): The Choice Between Market Failures and Corruption American Economic Review, 90. pp. 194-211.

Basu, S. – Fernald, J. – Kimball, M. (2004): Are Technology Improvements Contractionary? American Economic Review, 96. pp. 1418-1448.

Bessenyei I. (2001): Közjavak és korrupció Ramsey modelljében (Public goods and corruption in Ramsey's model). SZIGMA, 32, 1-2, pp. 29-47.

Bessenyei I. (2006): Puha költségvetési korlát és stop-go politika egy kétszektoros AK modellben (Soft budget constraints and stop-go policy in a two-sector AK model). SZIGMA, 37, 1-2, pp. 47-59.

Bródy A. (2002): Gazdasági számvetés (Economic reckoning). Közgazdasági Szemle, 49, pp. 943-959.

Bródy A. (2003): Arány, ütem és forma: A ciklusok alaktanához (Pace, pattern and phase: a morphology of cycles). Közgazdasági Szemle, 50, pp. 136-151.

Debreu, G. (1991): Mathematization of Economic. Theory. American Economic Review, 81, pp. 1-7.

Gali, J. – Rabanal, P. 2004 Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Postwar U.S. Data? NBER Macroeconomics Annual, pp. 225–288.

Hámori B. (1998): Érzelemgazdaságtan – a közgazdasági elmélet kiterjesztése (Emotional economics – the extension of economic theory). Kossuth Kiadó, Budapest.

Jones, H. (1976): An Introduction to Modern Theories of Economic Growth. McGraw-Hill, London.

Kornai J. (1980): A hiány (Economics of shortage). Közgazdasági és Jogi Könyvkiadó, Budapest.

Mauro, P. (1998): Corruption and the composition of government expenditure. Journal of Public Economics, 69, pp. 263-279.

Petschnig M. Z. (1993): Rendszerváltás a korrupcióban (Regime change in corruption). Korunk, 7, pp. 11–21.

Shone, R. (2002) Economic Dynamics – Phase Diagrams and Their Economic Application. Cambridge University Press.

Soós K. A. (1986) Terv, kampány, pénz (Plan, campaign, money). Közgazdasági és Jogi Könyvkiadó – Kossuth Könyvkiadó, Budapest.