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The golden rule of public finance and the composition of government expenditures: a growth and welfare analysis

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  • Max Groneck

Abstract

This paper employs an endogenous growth model to study the growth and welfare effects of the golden rule of public finance. Two versions are compared, whereby government deficits are restricted for the use of public investments. It is shown that the growth effect of the golden rule depends on what kind of expenditure is adjusted to meet debt obligations. A transition from a balanced budget to a golden rule is performed to study welfare. The results indicate that a budget rule with detrimental growth effects can still have positive welfare implications, and vice versa, if the composition of government expenditures and transitional dynamics are taken into account.

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  • Max Groneck, 2011. "The golden rule of public finance and the composition of government expenditures: a growth and welfare analysis," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 14(4), pages 273-294.
    • Handle: RePEc:taf:jecprf:v:14:y:2011:i:4:p:273-294
    DOI: 10.1080/17487870.2011.590328
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    Cited by:

    1. Teresa Famulska & Jan Kaczmarzyk & Malgorzata Grzaba, 2020. "The Relationship Between Tax Revenue and Public Social Expenditure in the EU Member States," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 1136-1156.
    2. Kamiguchi, Akira & Tamai, Toshiki, 2019. "Public investment, public debt, and population aging under the golden rule of public finance," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 110-122.
    3. Lotta-Maria Sinervo, 2020. "Financial Sustainability of Local Governments in the Eyes of Finnish Local Politicians," Sustainability, MDPI, vol. 12(23), pages 1-16, December.
    4. Zwelihle Wiseman NZUZA, 2014. "Perceived Effectiveness of Municipal Financial Management on the Performance of Inventory Stock Management in Local Government of South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 6(3), pages 251-261.
    5. Shvets, Serhii, 2020. "The golden rule of public finance under active monetary stance: endogenous setting for a developing economy," MPRA Paper 101232, University Library of Munich, Germany.
    6. Alfred Greiner, 2016. "Human capital formation and public debt: growth and welfare effects of three different deficit policies," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 19(4), pages 369-385, October.
    7. Tamai, Toshiki, 2016. "Public investment, the rate of return, and optimal fiscal policy in a stochastically growing economy," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 1-17.
    8. Akira Kamiguchi & Toshiki Tamai, 2017. "Public Investment and Golden Rule of Public Finance in an Overlapping Generations Model," KIER Working Papers 971, Kyoto University, Institute of Economic Research.
    9. Kamiguchi, Akira & Tamai, Toshiki, 2023. "Public investment, national debt, and economic growth: The role of debt finance under dynamic inefficiency," Journal of Macroeconomics, Elsevier, vol. 77(C).
    10. F. Stevens Redburn, 2021. "Budgeting for existential crisis: The federal government as society's guarantor," Public Budgeting & Finance, Wiley Blackwell, vol. 41(3), pages 5-21, September.

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