Borrowing to Finance Public Investment: A Politico-Economic Analysis of Fiscal Rules

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines the golden rule of public finance, distinguishing between public investment and consumption spending when borrowing, allowing for exclusively debt-financed public investment. Explored within an overlapping-generations model that encompasses the accumulation of physical and public capital, the rule and its associated fiscal policy emerge internally, selected by short-lived governments that represent current generations. The model is calibrated for Germany, Japan, and the United Kingdom, demonstrating adherence to the rule in Germany and deviation from it in Japan and the United Kingdom, which aligns with the available evidence. The evaluation from the perspective of a long-term planner reveals the government’s excessive choices in public debt across these countries.

Keywords: Fiscal Rule; Golden Rule of Public Finance; Probabilistic Voting; Overlapping Generations; Political Distortions (search for similar items in EconPapers)
JEL-codes: D70 E62 H63 (search for similar items in EconPapers)
Date: 2023-12-21
New Economics Papers: this item is included in nep-dge and nep-eur
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Related works:
Working Paper: Borrowing to finance public investment: a politico-economic analysis of fiscal rules (2022)
Working Paper: Borrowing to Finance Public Investment: A Politico-economic Analysis of Fiscal Rules (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:119724

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