Fiscal policies and the terms of trade in an endogenous growth model with overlapping generations


Mourmouras, I.A. and Ghosh, S. (1997) Fiscal policies and the terms of trade in an endogenous growth model with overlapping generations. Southampton, UK, University of Southampton (Discussion Papers in Economics and Econometrics 9719).

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Description/Abstract

This paper investigates how changes in fiscal policy can affect relative prices, optimal savings and steady state utility in a two-country, overlapping generations model of endogenous growth. We develop a simple model that combines Blanchard-type consumers with uncertain lifetimes, with an endogenous growth model … la Romer in which there are production externalities from the capital stock of other firms. The basic insight is to highlight, within an optimising framework, a potentially interesting link between fiscal policy and the terms of trade. A permanent rise in one country's share of government consumption to GDP results in an improvement in its terms of trade, a fall in its share of private consumption to GDP and a lower growth rate. A steady state rise in the public debt to GDP ratio results in an increase in the share of consumption to GDP, a higher demand for the foreign good and a lower growth rate. The effect upon the terms of trade is, however, ambiguous.

Item Type: Monograph (Discussion Paper)
Related URLs:
Subjects: H Social Sciences > HF Commerce
J Political Science > JA Political science (General)
H Social Sciences > HJ Public Finance
Divisions: University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 33193
Date Deposited: 25 Jan 2008
Last Modified: 27 Mar 2014 18:20
URI: http://eprints.soton.ac.uk/id/eprint/33193

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