NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Political Economy of Debt and Growth

Marco Battaglini, Levon Barseghyan

NBER Working Paper No. 21660
Issued in October 2015
NBER Program(s):Public Economics, Political Economy

We present a theory of endogenous fiscal policy and growth. Fiscal policy — debt, income tax, spending on local public goods and public investment — is determined through legislative bargaining. Economic growth depends directly on public investment, private investment in human capital and, via learning-by-doing, labor supply. The model predicts that the economy converges to a balanced growth path in which consumption, private investment, public investment, public goods provision, public debt and productivity grow at the same constant rate. The transition to the balanced growth path is characterized by what we call the shrinking government effect: public debt grows faster than GDP, provisions of public goods and infrastructure grow slower than GDP and the tax rate declines. We use the model to study the impact of austerity programs which impose a ceiling on the amount of public debt a country can issue.

download in pdf format
   (550 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21660

Published: Barseghyan, Levon & Battaglini, Marco, 2016. "Political economy of debt and growth," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 36-51. citation courtesy of

Users who downloaded this paper also downloaded* these:
Alesina and Passalacqua w21821 The Political Economy of Government Debt
D'Erasmo, Mendoza, and Zhang w21574 What is a Sustainable Public Debt?
McKenzie and Woodruff w21505 Business Practices in Small Firms in Developing Countries
Brune, Giné, Goldberg, and Yang w20946 Facilitating Savings for Agriculture: Field Experimental Evidence from Malawi
Caballero, Farhi, and Gourinchas w21670 Global Imbalances and Currency Wars at the ZLB.
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us