An Inverted U-Shaped Relationship between Public Debt and Economic Growth under the Golden Rule of Public Finance

  • Ueshina M
  • Nakamura T
N/ACitations
Citations of this article
9Readers
Mendeley users who have this article in their library.

Abstract

Empirical evidence shows an inverted U-shaped relationship between public debt-to-GDP ratio and economic growth for many advanced economies. Using a simple endogenous growth model with public debt under the Golden Rule of Public Finance (GRPF), which allows the government to issue bonds only to finance public investment, this paper explains the relationship. Although Greiner [1] explains it in the similar model, he introduces a more restrictive assumption than GRPF that the amount of public investment must be always equal to that of newly issued bonds, i.e., public investment must be financed only by newly issued bonds. This paper shows that the assumption is not needed. In other words, the inverted U-shaped relationship emerges in a more realistic case when public investment is partly financed by other sources than government bonds such as taxes.

Cite

CITATION STYLE

APA

Ueshina, M., & Nakamura, T. (2019). An Inverted U-Shaped Relationship between Public Debt and Economic Growth under the Golden Rule of Public Finance. Theoretical Economics Letters, 09(06), 1792–1803. https://doi.org/10.4236/tel.2019.96114

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free