Public deficits and economic growth |
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Authors: | Oscar Afonso Rui Henrique Alves Paulo B. Vasconcelos |
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Affiliation: | aFaculdade de Economia do Porto and CEFUP - Centro de Economia e Finanças da Universidade do Porto, Portugal;bFaculdade de Economia do Porto and CMUP – Centro de Matemática da Universidade, do Porto, Portugal |
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Abstract: | Considering an integrated area, this paper deals with the balance between the positive effects in the degree of economic cohesion resulting from R&D subsidies, temporarily granted from an imitator and less developed country, and the external negative effects arising from the eventual creation of excessive public deficits.We propose and numerically solve a model of a monetary union between two countries, one being innovator and the other imitator. Results suggest the pertinence of allowing for a temporary differentiation of fiscal discipline rules in favour of the less developed country. R&D subsidies granted by this country seem to lead to an easier catching-up without producing important negative external effects, also as not hurting severely the conditions for long-run sustainability of public accounts. |
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Keywords: | Economic growth R& D subsidies Economic cohesion Public deficits Numerical computations |
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