Publication detail

The Golden Rule of Public Finance and the Productivity of Public Capital

Author(s): PhDr. Terezie Výprachtická (Lokajíčková) ,
Type: IES Working Papers
Year: 2011
Number: 3
ISSN / ISBN:
Published in: IES Working Papers 3/2011
Publishing place: Prague
Keywords: Golden rule of public finance, European Union, Cointegration, Productivity of capital, Cobb-Douglas production function
JEL codes: C23, E22, E62, H52, H62
Suggested Citation: Lokajíčková, T. (2011). “The Golden Rule of Public Finance and the Productivity of Public Capital” IES Working Paper 3/2011. IES FSV. Charles University.
Abstract: This paper concentrates on the golden rule of public finance. It reviews the main advantages and disadvantages of the potential implementation of this rule in the European Union. Often the question of the productivity of public capital is at the heart of the rule’s discussions. As this issue has mostly been investigated for the United States, we try to estimate the productivity of public capital using data on the current member states of the European Union. Working both with data on net capital stocks and gross capital formation, we come to the conclusion that there is a cointegrating relationship between capital and output and that this relationship is in most cases positive. However, as there are also other expenditures classified as current spending that have a positive effect on the output in the long run, we argue that the golden rule should not be introduced in the European Union if the current definition of public capital investment does not change for the rule’s purposes.
Downloadable: wp_2011_03_lokajickova
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