Productive government expenditure and fiscal sustainability

Arai, Real (2008): Productive government expenditure and fiscal sustainability. Forthcoming in:

Abstract

We consider an overlapping generations model in which public spending directly contributes to grow up productivity as Barro (1990) and a government comforts the constant spending-GDP and debtspending ratio rules. We analyse policy effects on fiscal sustainability, growth rate and welfare. This paper gives some remarks as follows: First, we demonstrate that when spending-GDP ratio rises it may be more sustainable fiscal policy. Second, we show analytically that if higher spending-GDP ratio is more sustainable fiscal policy, it brings higher growth rate in both short-term and long-term. Third, such policy change is Pareto improving. These remarks are not obtained in previous researches on fiscal sustainability.

• Item Type: MPRA Paper
• Language: English
• 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 > H63 - Debt ; Debt Management ; Sovereign Debt

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