Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/85615
Authors: 
Dur, Robert A.J.
Peletier, Ben D.
Swank, Otto H.
Year of Publication: 
1997
Series/Report no.: 
Tinbergen Institute Discussion Paper 97-125/1
Abstract: 
Uncertainty about the future preferences of the government may induce policy makers to run excessive budget deficits. As a solution to this problem, economists have proposed to impose a binding debt rule. In this paper we argue that a binding debt rule does not eliminate the distortions due to strategic behaviour of politicians. Rather, strategic manipulation shifts from public debt to public investment. As an alternative, we examine the effects of a capital borrowing rule which permits the government to run a budget deficit equal to the amount of public investment. We show that this rule effectively eliminates strategic behaviour.
Subjects: 
fiscal rules
budget deficits
public investment
JEL: 
D72
E62
H61
H62
Document Type: 
Working Paper

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