Human capital formation and public debt: Growth and welfare effects of three different deficit policies

Greiner A (2015) Working Papers in Economics and Management; 05-2015.
Bielefeld: Bielefeld University, Department of Business Administration and Economics.

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Abstract
In this paper we analyze an endogenous growth model with human capital that results from public educational spending. We allow for public debt and analyze three different debt policies: a balanced government budget, a slight deficit policy where debt grows but less than GDP, and a strong deficit policy where debt grows at the same rate as GDP. We find that the balanced budget policy and the policy with a slightly growing public debt are equivalent as concerns long-run economic growth. Further, those two rules yield higher growth than a debt policy where public debt grows at the same rate as GDP, unless the government is a creditor. As concerns welfare, it can be demonstrated that a strong deficit policy yields lower welfare than a balanced budget and a slight deficit, unless initial debt ratios are low and the intertemporal elasticity of substituion is high. Finally, it is demonstrated that there may exist an inverted U-shaped relation between welfare and deficit financed educational spending.
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Greiner A. Human capital formation and public debt: Growth and welfare effects of three different deficit policies. Working Papers in Economics and Management. Vol 05-2015. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2015.
Greiner, A. (2015). Human capital formation and public debt: Growth and welfare effects of three different deficit policies (Working Papers in Economics and Management, 05-2015). Bielefeld: Bielefeld University, Department of Business Administration and Economics. doi:10.4119/unibi/2915563
Greiner, A. (2015). Human capital formation and public debt: Growth and welfare effects of three different deficit policies. Working Papers in Economics and Management, 05-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Greiner, A., 2015. Human capital formation and public debt: Growth and welfare effects of three different deficit policies, Working Papers in Economics and Management, no.05-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
A. Greiner, Human capital formation and public debt: Growth and welfare effects of three different deficit policies, Working Papers in Economics and Management, vol. 05-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2015.
Greiner, A.: Human capital formation and public debt: Growth and welfare effects of three different deficit policies. Working Papers in Economics and Management, 05-2015. Bielefeld University, Department of Business Administration and Economics, Bielefeld (2015).
Greiner, Alfred. Human capital formation and public debt: Growth and welfare effects of three different deficit policies. Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2015. Working Papers in Economics and Management. 05-2015.
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Human capital formation and public debt: growth and welfare effects of three different deficit policies
Greiner A (2016)
JOURNAL OF ECONOMIC POLICY REFORM 19(4): 369-385.

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