بدهی های عمومی و محدودیت های سیاست های مالی برای افزایش رشد اقتصادی

This study proposes a theoretical model of endogenous growth that demonstrates that the level of the public debt-to-gross domestic product (GDP) ratio should negatively impact the effect of fiscal policy on growth. This effect occurs because government indebtedness extracts a portion of young people's savings to pay interest on the debts. Therefore, the payment of debt interest requires an allocation exchange system across generations that is similar to a pay-as-you-go pension system, which results in changes in the savings rate of the economy. The major conclusions of the theoretical model were verified using an econometric model that provides evidence of the validity of this conclusion. Our empirical analysis controls for time-invariant, country-specific heterogeneity in growth rates. We also address endogeneity issues and allow for heterogeneity across countries in the model parameters and for cross-sectional dependence.

This paper examines how the size of the public debt-to-GDP ratio limits the effects of productive government expenditures on long-term growth. We conduct this analysis by proposing a model with overlapping generations and endogenous growth, wherein the government can go into debt to increase its productive expenditures. Various studies present models in which public expenditures affect growth within a framework of endogenous growth (Chen, 2006, Devarajan et al., 1996, Glomm and Ravikumar, 1997 and Barro, 1990). The effect of these expenditures varies according to their nature, their composition, and the size of the tax burden. Other studies demonstrate that public debt can negatively affect growth (Saint-Paul, 1992 and Brauninger, 2005). In this paper, we establish a link between these two classes of models and demonstrate that the effect of productive expenditures on growth is limited not only by the size of the tax burden and the rate of indebtedness, as predicted by these models, but also by the debt-to-GDP ratio. Like the models of Barro (1990) and Saint-Paul (1992), the model that we propose demonstrates that an increase in public expenditures can have three direct effects on growth. An increase in public expenditures positively affects economic productivity but also has negative effects in that it increases the tax burden and public indebtedness as necessary to finance the expenditures, which results in a decrease in savings. Furthermore, as we will demonstrate here, there is an additional indirect effect. An increase in productive expenditures results in an increase in the equilibrium interest rate due to the increase in productivity. This increase, in turn, results in an increase in expenditures for interest on public debt and an additional reduction in savings because government indebtedness extracts a portion of young people's savings to pay interest on the debts of the older generation, which is no longer saving. Therefore, the payment of debt interest requires an allocation exchange system across generations that is similar to a pay-as-you-go pension system, which results in changes in the savings rate of the economy. In the second part of the paper, we estimate a growth equation using the specifications proposed by the theoretical model for a panel of countries to provide valid evidence for the theoretical model's conclusions. Our empirical analysis controls for time-invariant, country-specific heterogeneity in growth rates. We also address endogeneity issues and allow for heterogeneity across countries in the model parameters and for cross-sectional dependence. Various studies have found empirical evidence that the allocation of public funds to education, health, and infrastructure expenses positively impacts economic growth (Aschauer, 1989, Easterly and Rebelo, 1993 and Gupta et al., 2005). However, there is no consensus regarding this issue, as many studies have yielded insignificant results (Devarajan et al., 1996 and Agell et al., 2006). We suggest that the disagreement among these studies can be reconciled if we more closely examine the theory. We use a specified theoretical model that clarifies the proper non-linear specification of our growth regression and allows us to disregard the role of public debt in this relationship. In addition, we find evidence that the magnitude of the effect of public debt in this context is significant.

This paper proposes a theoretical model of endogenous growth in which the level of the public debt-to-GDP ratio can negatively impact the effects of productive public expenditures on growth. The main conclusions obtained from the theoretical model are verified using an econometric model that provides evidence of the validity of the theoretical model. Our empirical analysis controls for time-invariant, country-specific heterogeneity in the growth rates. We also address endogeneity issues and allow for heterogeneity across countries in terms of the model parameters; we also allow for cross-sectional dependence. Our approach has enabled us to verify the existence of effects that have already been predicted in the literature, such as the non-linear effects of productive expenditures on growth given the size of the tax burden, as shown by Barro (1990), or given the indebtedness rate. Such effects are negative for direct capital accumulation because they lead to diminishing marginal net returns of capital or savings extracted from the economy to finance public expenditures. In addition to isolating the above effects, we were able to observe an additional effect: the impact of productive expenditures on growth depends on the size of the debt-to-GDP ratio because an increase in the magnitude of productive expenditures leads to an increase in the productivity of the economy and, thus, to an equilibrium of interest rates. The latter occurs because there is no decreasing marginal return for aggregate capital in the endogenous growth models. This increase in interest rates leads to higher government spending for debt servicing; as the size of the debt increases, so does the impact of this increase on interest rates. For this reason, a higher debt-to-GDP ratio corresponds to a smaller impact of productive expenditures on economic growth.We can also understand this effect as a process of income transfer between generations: the income flows from the younger generation, which has a portion of its savings invested in government securities and thus decreases its own capital accumulation, to the older generation, which does not save and has its interest paid in this way. In this sense, the observed effect is similar to that of the pay-as-you-go pension system in overlapping-generation models, in which income is transferred between generations and decreases the accumulation of capital. In addition to incorporating the effect of public debt on the relationship between productive expenditures and economic growth, the model also demonstrates that increases in the size of the debt can lead to greater economic growth; the status quo is a healthy fiscal situation, and indebtedness is associated with an increase in productive expenditures. This finding runs contrary to those of previous models, in which debt increases always lead to decreased growth. This result shows that changes in the public debt can be Pareto optimal, leading to benefits for all generations. This conclusion is quite different from the one encouraged by the results obtained using endogenous models of debt, in which expenditures are always unproductive. We used the econometric specifications that were derived from the implications of the theoretical model to validate the main conclusions of the model. The results suggest that the size of the debt-to-GDP ratio is a relevant variable in the effects of productive expenditures on growth.