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Public Debt in a Federation - Growth and Stability / Staatsverschuldung in einer Föderation - Wachstum und Stabilität

Author

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  • Wenzel Heinz-Dieter

    (Universität Bamberg, Lehrstuhl für Finanzwissenschaft, Feldkirchenstraße 21, D-96045 Bamberg. Tel.: (0951) 863 2547-49)

  • Wrede Matthias

    (Universität Bamberg, Lehrstuhl für Finanzwissenschaft, Feldkirchenstraße 21, D-96045 Bamberg. Tel.: (0951) 863 2547-49)

Abstract

In this paper a neoclassical growth model is used to analyze public debt in a growing economy with two levels of government. The main focus is on the existence and the stability of long run equilibria in a growing federal state. It is shown that the equilibrium in a federation with two levels of government is more likely to be unstable than the equilibrium in a centralized state. Moreover, if the saving rate is below the golden rule, the equilibrium will be unambiguously unstable. In order to avoid instability, sufficient flexibility at all levels of government in federations and confederations such as the European union is required.

Suggested Citation

  • Wenzel Heinz-Dieter & Wrede Matthias, 2000. "Public Debt in a Federation - Growth and Stability / Staatsverschuldung in einer Föderation - Wachstum und Stabilität," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 220(1), pages 95-107, February.
    • Handle: RePEc:jns:jbstat:v:220:y:2000:i:1:p:95-107
    DOI: 10.1515/jbnst-2000-0107
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    References listed on IDEAS

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    1. Eichengreen, Barry & von Hagen, Jürgen, 1995. "Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule," CEPR Discussion Papers 1247, C.E.P.R. Discussion Papers.
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    3. Kneebone, Ronald D., 1989. "Does fiscal policy matter in a federal economy?," Journal of Macroeconomics, Elsevier, vol. 11(4), pages 599-607.
    4. Ronald D. Kneebone, 1989. "On Macro-economic Instability under a Monetarist Policy Rule in a Federal Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 673-685, August.
    5. Heinz-Dieter Wenzel & Matthias Wrede, 1993. "Golden Rule Fiscal Policy," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 129(II), pages 123-150, June.
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