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Public Debt And Public Investment In An Endogenous Growth Model With Real Wage Rigidities

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  • Alfred Greiner
  • Peter Flaschel

Abstract

We present an endogenous growth model with public capital, public debt and real wage rigidities due to labor market imperfections. Assuming that the primary surplus relative to gross domestic produce (GDP) is a positive function of the debt to GDP ratio, we study growth and employment effects of deficit‐financed public investment using simulations as well as how fiscal policy affects stability of the economy. Further, we contrast the growth rate and the unemployment rate in the deficit scenario with that of the balanced budget scenario. Finally, we compare our results with those obtained in case of flexible wages and full employment.

Suggested Citation

  • Alfred Greiner & Peter Flaschel, 2010. "Public Debt And Public Investment In An Endogenous Growth Model With Real Wage Rigidities," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 68-84, February.
    • Handle: RePEc:bla:scotjp:v:57:y:2010:i:1:p:68-84
    DOI: 10.1111/j.1467-9485.2009.00507.x
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    References listed on IDEAS

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    14. repec:bla:germec:v:8:y:2007:i::p:1-27 is not listed on IDEAS
    15. Alfred Greiner, 2008. "Does it Pay to Have a Balanced Government Budget?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 460-476, September.
    16. Greiner Alfred, 2007. "The Dynamic Behaviour of an Endogenous Growth Model with Public Capital and Pollution," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(2), pages 1-12, May.
    17. Futagami, Koichi & Iwaisako, Tatsuro & Ohdoi, Ryoji, 2008. "Debt Policy Rule, Productive Government Spending, And Multiple Growth Paths," Macroeconomic Dynamics, Cambridge University Press, vol. 12(4), pages 445-462, September.
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    Cited by:

    1. Alfred Greiner, 2015. "Fiscal and Monetary Policy in a Basic Endogenous Growth Model," Computational Economics, Springer;Society for Computational Economics, vol. 45(2), pages 285-301, February.
    2. Ono, Tetsuo, 2019. "Growth, Unemployment, And Fiscal Policy: A Political Economy Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3099-3139, December.
    3. Elias Sanidas, 2014. "The Greek Non-Paradigm of Economic and Business Development, and Comparisons with South Korea," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 64(3), pages 30-48, July-Sept.
    4. Shobande Olatunji Abdul, 2020. "Fiscal Rule in Africa," Open Economics, De Gruyter, vol. 3(1), pages 112-120, January.
    5. Raurich, Xavier & Sorolla, Valeri, 2014. "Growth, unemployment and wage inertia," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 42-59.
    6. Hiraga, Kazuki, 2016. "Fiscal stabilization rule and overlapping generations," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 313-324.
    7. Shobande Olatunji Abdul, 2020. "Fiscal Rule in Africa," Open Economics, De Gruyter, vol. 3(1), pages 112-120, January.
    8. Peter Flaschel & Alfred Greiner, 2011. "A Future for Capitalism," Books, Edward Elgar Publishing, number 14241.
    9. Pierre-Richard Agénor & Devrim Yilmaz, 2012. "Simple Dynamics of Public Debt with Productive Public Goods," Centre for Growth and Business Cycle Research Discussion Paper Series 165, Economics, The University of Manchester.
    10. Greiner, Alfred, 2012. "Public debt in a basic endogenous growth model," Economic Modelling, Elsevier, vol. 29(4), pages 1344-1348.
    11. Flaschel, Peter & Greiner, Alfred, 2012. "Flexicurity Capitalism: Foundations, Problems, and Perspectives," OUP Catalogue, Oxford University Press, number 9780199751587.
    12. Alfred Greiner, 2013. "Debt and growth: Is there a non-monotonic relation?," Economics Bulletin, AccessEcon, vol. 33(1), pages 340-347.
    13. Yakita, Akira, 2014. "Involuntary unemployment and sustainability of bond-financed fiscal deficit," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 79-93.

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