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DEBT POLICY RULE, PRODUCTIVE GOVERNMENT SPENDING, AND MULTIPLE GROWTH PATHS: A NOTE

Published online by Cambridge University Press:  30 January 2012

Alexandru Minea
Affiliation:
CERDI, University of Auvergne
Patrick Villieu
Affiliation:
LEO, University of Orléans
Corresponding

Abstract

In a very interesting endogenous growth model, Futagami, Iwaisako, and Ohdoi [Macroeconomic Dynamics 12 (2008), 445–462] study the long-run growth effect of borrowing for public investment. Their model exhibits (i) the multiplicity of balanced growth paths (BGPs) in the long run (two steady states) and (ii) a possible indeterminacy of the transition path to the high-growth BGP. The goal of this note is to show that their results depend on a sharp assumption, namely the definition of the public debt target as a ratio to private capital. If the target is defined in terms of public debt–to–GDP ratio, both results vanish: the model exhibits a unique BGP (no multiplicity) and the adjustment path to this unique equilibrium is determinate (no indeterminacy).

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Notes
Copyright
Copyright © Cambridge University Press 2012 

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References

Futagami, Koichi, Iwaisako, Tatsuro, and Ohdoi, Ryoji (2008) Debt policy rules, productive government spending, and multiple growth paths. Macroeconomic Dynamics 12, 445462.CrossRefGoogle Scholar
Minea, Alexandru and Villieu, Patrick (2010) Endogenous growth, government debt and budgetary regimes, by Greiner, A. and W. Semmler: A corrigendum. Journal of Macroeconomics 32, 709711.CrossRefGoogle Scholar
Minea, Alexandru and Villieu, Patrick (in press) Persistent deficit, growth and indeterminacy. Macroeconomic Dynamics.Google Scholar

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DEBT POLICY RULE, PRODUCTIVE GOVERNMENT SPENDING, AND MULTIPLE GROWTH PATHS: A NOTE
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