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Productive Government Expenditure and Fiscal Sustainability

Rubrik: Articles
Jahrgang 67 (2011) / Heft 4, S. 327-351 (25)
Publiziert 09.07.2018
DOI 10.1628/001522111X614150
Veröffentlicht auf Englisch.
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Beschreibung
We consider an overlapping-generations model in which public spending directly contributes to an increase in productivity, as in the model of Barro (1990), and in which the government maintains constant ratios of public spending to GDP and of debt issuance to public spending. We numerically analyze the effects of a change of public-spending/GDP on fiscal sustainability, growth rate, and welfare. First, if that ratio is small, an increase in it makes public debt sustainable. Second, if it is small, then an increase in it is Pareto improving.