GROWTH AND NATIONAL DEBT WITH IMPORTED GOODS, TOURISM, AND PUBLIC GOODS

Wei-Bin ZHANG*

The paper develops an economic growth model of a small open economy with government debt, tourism and imported goods in a perfectly competitive economy. The national economy consists of three, industrial, service and the public sectors. The production side is based on neoclassical growth theory. The household behavior is modeled according to Zhang’s approach. Non-linear dynamics interaction between the economic structural change, capital accumulation and public debt under different combinations of taxes on goods sector, the service sector, the wage income, the rate of interest, consumption of goods, and the consumption of service are also described. The model, simulate and demonstrate that the system has a unique unstable equilibrium point. Comparative dynamic analysis is carried out to provide insights into complicated consequences of environmental changes; for instance, if government spends more out of national income, the short-run consequences are debt, and the ratio of debt. The national output is increased and the economy employs more capital; thus it produces less and borrows more from foreign economies, more tourists visit the country; the household has less wealth and reduces consumption of the three goods. The industrial sector shrinks and the service sector expands.