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- Title
DEBT POLICY RULE, PRODUCTIVE GOVERNMENT SPENDING, AND MULTIPLE GROWTH PATHS: A NOTE.
- Authors
Minea, Alexandru; Villieu, Patrick
- Abstract
In a very interesting endogenous growth model, Futagami, Iwaisako, and Ohdoi [Macroeconomic Dynamics 12 (2008), 445–462] study the long-run growth effect of borrowing for public investment. Their model exhibits (i) the multiplicity of balanced growth paths (BGPs) in the long run (two steady states) and (ii) a possible indeterminacy of the transition path to the high-growth BGP. The goal of this note is to show that their results depend on a sharp assumption, namely the definition of the public debt target as a ratio to private capital. If the target is defined in terms of public debt–to–GDP ratio, both results vanish: the model exhibits a unique BGP (no multiplicity) and the adjustment path to this unique equilibrium is determinate (no indeterminacy).
- Subjects
DEBT; ECONOMIC policy; PUBLIC spending; ECONOMIC development; PUBLIC investments; CREDIT; ENDOGENOUS growth (Economics)
- Publication
Macroeconomic Dynamics, 2013, Vol 17, Issue 4, p947
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100511000642