Public Debt and Endogenous Growth

This book considers public debt dynamics in various endogenous growth models, namely the AK model and explicit models of innovation and human capital accumulation. Furthermore, the closed economy, the small open economy and a two-country world are analysed. In the closed economy model, the focus is on budget deficit and public debt dynamics and their influence on capital growth and output growth. Then, in the open economy model, the effects on foreign debt growth are considered. In a two-country setting, public debt growth in one country affects growth in the other country. In each scenario the government either fixes the deficit ratio or the tax rate. For both strategies the steady state is derived and stability is analysed. Then, dynamics induced by various shocks and policy measures are explored. Many diagrams illustrate the dynamics.

Texte du rabat

This book considers public debt dynamics in various endogenous growth mod­ els, namely the AK model and explicit models of innovation and human cap­ ital accumulation. Furthermore, the closed economy, the small open economy and a two-country world are analysed. In the closed economy model, the focus is on budget deficit and public debt dynamics and their influence on capital growth and output growth. Then, in the open economy model, the effects on foreign debt growth are considered. In a two-country setting, public debt growth in one country affects growth in the other country. In each scenario the government either fixes the deficit ratio or the tax rate. For both strategies the steady state is derived and stability is analysed. Then, dynamics induced by various shocks and policy measures are explored. Many diagrams illustrate the dynamics. I greatly benefited from comments by Michael Carlberg. In addition, Alkis Otto and Justus Haucap discussed with me many parts of the book. I wish to thank them all. Hamburg, February 2003 Michael Briiuninger Contents 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 . . . . . . . . . . . . . . Part I The Closed Economy with AK Production 2 The Solow Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 . . . . . . . . . . 2. 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2. 2 Fixing the Deficit Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . 6 . . . . . . . . 2. 2. 1 The Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 . . . . . . . . . 2. 2. 2 Stability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2. 2. 3 Some Shocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 . . . . . . . . . 2. 2. 4 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2. 3 Fixing the Tax Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 . . . . . . . . . 2. 3. 1 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2. 3. 2 Stability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2. 3. 3 Some Shocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 . . . . . . . . . 2. 3. 4 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contenu

1 Introduction.- I The Closed Economy with AK Production.- 2 The Solow Model.- 2.1 Introduction.- 2.2 Fixing the Deficit Ratio.- 2.2.1 The Model.- 2.2.2 Stability.- 2.2.3 Some Shocks.- 2.2.4 Summary.- 2.3 Fixing the Tax Rate.- 2.3.1 The Model.- 2.3.2 Stability.- 2.3.3 Some Shocks.- 2.3.4 Summary.- 2.4 The Optimal Deficit Ratio.- 2.4.1 The Model.- 2.4.2 Stability.- 2.4.3 Some Shocks.- 2.4.4 Summary.- 3 The Overlapping Generations Model.- 3.1 Introduction.- 3.2 Fixing the Deficit Ratio.- 3.2.1 The Model.- 3.2.2 Stability.- 3.2.3 A Balanced Budget.- 3.2.4 An Increase in the Deficit Ratio.- 3.2.5 Summary.- 3.3 Fixing the Tax Rate.- 3.3.1 The Model.- 3.3.2 Stability.- 3.3.3 Summary.- II Human Capital and Innovations in the Closed Economy.- 4 The Augmented Solow Model.- 4.1 Introduction.- 4.2 Fixing the Deficit Ratio.- 4.2.1 The Model.- 4.2.2 Stability.- 4.2.3 Some Shocks.- 4.2.4 Summary.- 4.3 Fixing the Tax Rate.- 4.3.1 The Model.- 4.3.2 A Tax Cut.- 4.3.3 Summary.- 5 The Romer Model.- 5.1 Introduction.- 5.2 Fixing the Deficit Ratio.- 5.2.1 The Model.- 5.2.2 Stability.- 5.2.3 Some Shocks.- 5.2.4 Summary.- 5.3 Fixing the Tax Rate.- 5.3.1 The Model.- 5.3.2 A Tax Cut.- 5.3.3 Summary.- III The Open Economy with AK Production.- 6 The Solow Model of the Small Open Economy.- 6.1 Introduction.- 6.2 Fixing the Deficit Ratio.- 6.2.1 Perfect Capital Mobility.- 6.2.2 The High-Productivity Country.- 6.2.3 Some Shocks.- 6.2.4 The Low-Productivity Country.- 6.2.5 Stability.- 6.2.6 Some Shocks.- 6.2.7 Summary.- 6.3 Fixing the Tax Rate.- 6.3.1 The High-Productivity Country.- 6.3.2 The Low-Productivity Country.- 6.3.3 Summary.- 7 The Solow Model of a Two-Country World.- 7.1 Introduction.- 7.2 Fixing the Deficit Ratio.- 7.2.1 The Model.- 7.2.2 Stability.- 7.2.3 Some Shocks.- 7.2.4 Summary.- 7.3 Fixing the Tax Rate.- 7.3.1 The Model.- 7.3.2 A Tax Cut.- 7.3.3 Summary.- 8 Conclusion.- 8.1 The Closed Economy with AK Production.- 8.2 Human Capital and Innovations in the Closed Economy.- 8.3 The Open Economy with AK Production.- 9 Result.- Symbols.- References.