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Endogenous Growth and European Fiscal Rules

[journal article]

Afonso, Oscar Joao; Alves, Rui Henrique

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Abstract We develop a general equilibrium endogenous growth model of a monetary union between two countries that differ in economic dimension and level of development. By solving transitional dynamics towards the steady state, we examine the impact of fiscal shocks that may lead to excessive deficits. Results suggest that the individual and the whole impact of such deficits depend on which country they occur. In such context, we argue that the small and less developed country should be allowed to temporarily run an excessive deficit, in order to improve economic convergence within the union.
Classification National Economy; Economic Policy; Public Finance
Publication Year 2009
Page/Pages p. 849-858
Journal Applied Economics, 41 (2009) 7
ISSN 1466-4283
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)