The macroeconomic effects of fiscal policy in a stochastically growing economy
AbstractThis paper develops a stochastic model of endogenous growth with productive government expenditure. Herein, we specify the CES production function according to recent empirical evidence. The elasticity of substitution plays a key role in determining macroeconomic performance and the effectiveness of fiscal policy under uncertainty. Results demonstrate that a large elasticity of substitution provides a large expected growth rate and also large volatility of the growth rate. Regarding these effects, the growth-maximizing tax rate and welfare-maximizing tax rate under uncertainty are larger or smaller than those of deterministic economy according to the elasticity of substitution.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 35 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
Fiscal policy; Stochastic growth;
Find related papers by JEL classification:
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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