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Political economy of debt and growth

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  • Barseghyan, Levon
  • Battaglini, Marco

Abstract

A theory of endogenous fiscal policy and growth is developed. Fiscal policy–debt, income tax, spending on local public goods, and public investment–is determined through legislative bargaining. Economic growth depends directly on public investment, private investment in human capital, and, via learning-by-doing, labor supply. The model economy converges to a balanced growth path. During the transition to the balanced growth path, public debt grows faster than GDP, provisions of public goods and infrastructure grow slower than GDP, and the tax rate declines. The model is used to assess welfare implications of austerity programs.

Suggested Citation

  • Barseghyan, Levon & Battaglini, Marco, 2016. "Political economy of debt and growth," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 36-51.
    • Handle: RePEc:eee:moneco:v:82:y:2016:i:c:p:36-51
    DOI: 10.1016/j.jmoneco.2016.06.007
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    Cited by:

    1. Simionescu Mihaela, 2018. "What Drives Economic Growth in Some CEE Countries?," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 28(1), pages 46-56, March.
    2. Uchida, Yuki & Ono, Tetsuo, 2021. "Political economy of taxation, debt ceilings, and growth," European Journal of Political Economy, Elsevier, vol. 68(C).
    3. Arawatari, Ryo & Ono, Tetsuo, 2021. "Public debt rule breaking by time-inconsistent voters," European Journal of Political Economy, Elsevier, vol. 69(C).
    4. Falavigna, G. & Ippoliti, R., 2021. "Reform policy to increase the judicial efficiency in Italy: The opportunity offered by EU post-Covid funds," Journal of Policy Modeling, Elsevier, vol. 43(5), pages 923-943.
    5. Pierre C. Boyer & Brian Roberson & Christoph Esslinger, 2024. "Public Debt and the Political Economy of Reforms," American Economic Journal: Microeconomics, American Economic Association, vol. 16(3), pages 459-491, August.
    6. Asatryan, Zareh & Castellón, César & Stratmann, Thomas, 2018. "Balanced budget rules and fiscal outcomes: Evidence from historical constitutions," Journal of Public Economics, Elsevier, vol. 167(C), pages 105-119.
    7. Arai, Real & Naito, Katsuyuki & Ono, Tetsuo, 2018. "Intergenerational policies, public debt, and economic growth: A politico-economic analysis," Journal of Public Economics, Elsevier, vol. 166(C), pages 39-52.
    8. Uchida, Yuki & Ono, Tetsuo, 2021. "Borrowing to finance public investment: a politico-economic analysis of fiscal rules," MPRA Paper 115844, University Library of Munich, Germany, revised 31 Dec 2022.
    9. Coccia, Mario, 2017. "Asymmetric paths of public debts and of general government deficits across countries within and outside the European monetary unification and economic policy of debt dissolution," The Journal of Economic Asymmetries, Elsevier, vol. 15(C), pages 17-31.
    10. Mario Coccia, 2019. "Metabolism of Public Research Organizations: How Do Laboratories Consume State Subsidies?," Public Organization Review, Springer, vol. 19(4), pages 473-491, December.
    11. Dennis Wesselbaum, 2018. "Fiscal Policy in a Business Cycle Model with Endogenous Productivity," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 103-135, May.

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    More about this item

    Keywords

    Fiscal policy; Endogenous growth; Debt;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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