Endogenous inflationary finance and long-run growth

This paper examines the effects of money financing of deficits on capital accumulation and growth in a framework where inflationary finance is determined endogenously through a dynamic game between an optimising central bank which attempts to minimise the inflation-tax and a rational private sector, and this in turn determines the long-run growth rate of the economy. We use dynamic programming to derive the time-consistent equilibrium, which has intuitive properties. Our results indicate clearly that the inflation tax and the long-run growth rate are negatively related.Economics, Input/output analysis, Production, Protectionism

Debt, Growth and Budgetary Regimes

Within the Barro (1990) model of productive public services, but with the inclusion of public debt, we derive and characterize on the balanced growth path, a set of welfare-maximizing fiscal rules under two budgetary regimes - one with only the standard dynamic government budget constraint, and the other involving the golden rule of public finance. We demonstrate analytically that the optimal fiscal policy differs in the two budgetary regimes considered. We also analyse two cases within the second regime: one, where the ratio of current spending to tax revenues is parametrically given, and another, where this ratio is optimally chosen by the government. Copyright Blackwell Publishers Ltd and the Board of Trustees of the Bulletin of Economic Research, 2004.