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Debt-financed fiscal policy, public capital, and endogenous growth

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  • Hagiwara, Takefumi

Abstract

This study investigates the conflicting effects of a debt-financed fiscal policy on endogenous growth in an overlapping generations model with public capital and debt. Although an accumulation of public capital enhances the production efficiency of private capital, it also impedes private capital accumulation by distorting savings allocations through public debt issuance. With a low deficit ratio, the fiscal policy brings new equilibria to an unstable economy. Meanwhile, a debt-financed fiscal policy with a higher deficit ratio causes a fiscal collapse and secular stagnation.

Suggested Citation

  • Hagiwara, Takefumi, 2024. "Debt-financed fiscal policy, public capital, and endogenous growth," MPRA Paper 120201, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:120201
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fiscal Sustainability; Public Debt; Public Capital; Secular Stagnation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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