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Golden Rule (fiscal policy)
About: Golden Rule (fiscal policy) is a research topic. Over the lifetime, 661 publications have been published within this topic receiving 9789 citations.
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TL;DR: In this paper, a neoclassical growth model is used to analyze public debt in a growing economy with two levels of government and the main focus is on the existence and the stability of long run equilibria.
Abstract: In this paper a neoclassical growth model is used to analyze public debt in a growing economy with two levels of government. The main focus is on the existence and the stability of long run equilibria in a growing federal state. It is shown that the equilibrium in a federation with two levels of government is more likely to be unstable than the equilibrium in a centralized state. Moreover, if the saving rate is below the golden rule, the equilibrium will be unambiguously unstable. In order to avoid instability, sufficient flexibility at all levels of government in federations and confederations such as the European union is required.
2 citations