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The Marginal Cost of Funds from Public Sector Borrowing
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Bev Dahlby
Published/Copyright:
January 13, 2006
Abstract
An expression for the welfare cost of a marginal increase in the public debt is derived using a simple AK endogenous growth model. This measure of the marginal cost of public funds (MCF) can be interpreted as the marginal benefit-cost ratio that a debt-financed public project needs in order to generate a net social gain. The model predicts an increase in the public debt ratio will have little effect on the optimal public expenditure ratio and that most of the adjustment will occur on the tax side of the budget.
Published Online: 2006-1-13
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Keywords for this article
public debt;
crowding out;
marginal cost of public funds;
endogenous growth
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- Second-Best Climate Agreements and Technology Policy
- An Economic Response to Unsolicited Communication
- Does the Open Economy Assumption Really Mean That Labor Bears the Burden of a Capital Income Tax?
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