Debt Policy Rules in an Open Economy

Keiichi Morimoto (), Takeo Hori (), Noritaka Maebayashi () and Koichi Futagami
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Takeo Hori: College of Economics, Aoyama Gakuin University
Noritaka Maebayashi: Faculty of Economics and Business Administration, The University of Kitakyushu

No 13-07-Rev., Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: In a small open economy model of endogenous growth with public capital accu- mulation, we examine the effects of a debt policy rule under which the government must reduce its debt-GDP ratio if it exceeds the criterion level. To sustain public debt at a finite level, the government should adjust public spending rather than the income tax rate. The long run debt-GDP ratio should be kept sufficiently low to avoid equilibrium indeterminacy. Under sustainability and determinacy, a tighter (looser) debt rule brings welfare gains when the world interest rate is relatively high (low).

Keywords: Fiscal policy; Public debt; Welfare; Small open economy; Indeterminacy; Limit cycles (search for similar items in EconPapers)
JEL-codes: E62 H54 H63 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2013-05, Revised 2015-08
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac, nep-opm and nep-pbe
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Related works:
Journal Article: Debt Policy Rules in an Open Economy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:1307r

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