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Binding Constraints and Second-Best Strategies in Endogenous Growth Models with Public Finance
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Florian Misch
Published/Copyright:
December 27, 2010
This paper uses an endogenous growth model with public finance to test whether alleviating the most binding constraint to growth corresponds to the optimal fiscal policy adjustment. It makes two contributions: first, it shows that this strategy is optimal if there is only one policy adjustment which alleviates the most binding constraint. When there are several, some of them may in fact reduce growth. The second contribution is therefore to develop a simple guiding principle for this situation: we show that it is likely optimal to adopt the policy adjustment which alleviates the most and worsens the least binding constraint.
Keywords: growth diagnostics; binding constraints; economic growth; productive public spending; optimal fiscal policy
Published Online: 2010-12-27
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Keywords for this article
growth diagnostics;
binding constraints;
economic growth;
productive public spending;
optimal fiscal policy
Articles in the same Issue
- Research Foundation
- Do Poorer Countries Have Less Capacity for Redistribution?
- Contagion, Liberalization, and the Optimal Structure of Globalization
- Binding Constraints and Second-Best Strategies in Endogenous Growth Models with Public Finance
- Policy Analysis
- Recent Russian Debate on Moving from VAT to Sales Taxes and Its Global Implications
- Aid, Growth, and Development: Have We Come Full Circle?
- Compensation for Indirect Expropriation in International Investment Agreements: Implications of National Treatment and Rights to Invest
- The Past and Future of American Finance: American Experimentalism without American Exceptionalism
- Puzzle
- Borrowing to Save
- Symposium
- Introduction: Is the Era of the Dollar Over?
- Towards A New Global Reserve System
- Does the SDR Have a Future?
- The New Politics of Global Reserve Reform
- An SDR Based Reserve System
- Building an SDR-Based Global Reserve System
- The Future of the Reserve System
- Is the Era of the Dollar Over?
