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Do Balanced-Budget Rules Increase Growth?

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  • Joe A. Stone

Abstract

type="main"> This study tests the hypothesis that balanced-budget rules (BBRs) that restrict public borrowing to investments in public infrastructure increase growth by increasing the productivity of debt, either because investments in public infrastructure are more productive than other uses for which states borrow funds or because BBRs lower borrowing costs. Results are based on data at 5-year intervals for 49 US states over the period 1957–2007. The tests strongly support the hypothesis that BBRs increase growth by increasing the productivity of debt and withstand a variety of robustness checks, including alternative lags, exogeneity tests, GMM estimation, a placebo test, and the influence of outliers.

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  • Joe A. Stone, 2016. "Do Balanced-Budget Rules Increase Growth?," Bulletin of Economic Research, Wiley Blackwell, vol. 68(1), pages 79-89, January.
    • Handle: RePEc:bla:buecrs:v:68:y:2016:i:1:p:79-89
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    File URL: http://hdl.handle.net/10.1111/boer.12038
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    Cited by:

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    2. Helder Ferreira de Mendonça & Iven Silva Valpassos, 2022. "Combination of economic policies: how the perfect storm wrecked the Brazilian economic growth," Empirical Economics, Springer, vol. 63(3), pages 1135-1157, September.
    3. Goldberg, Andrew & Romalis, John, 2015. "Public Debt and Growth in U.S. States," Working Papers 2015-10, University of Sydney, School of Economics.
    4. Emilian Dobrescu, 2018. "Functional trinity of public finance in an emerging economy," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 7(1), pages 1-27, December.

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    More about this item

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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