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The macroeconomics of TANSTAAFL

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  • Grossmann, Volker
  • Steger, Thomas M.
  • Trimborn, Timo

Abstract

Market imperfections may lead to underinvestment in dynamic general equilibrium models. An interesting but unexplored question is whether policy interventions which attenuate underinvestment gaps necessarily imply that consumption will initially decline. By employing a calibrated version of a standard R&D-based growth model, we show that raising the R&D subsidy rate may not only close the R&D underinvestment gap but also raise consumption per capita at all times (“intertemporal free lunch”). We also discuss the general mechanics of such an intertemporal free lunch in both one-sector and multi-sector growth models and further examples.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 38 (2013)
Issue (Month): PA ()
Pages: 76-85

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Handle: RePEc:eee:jmacro:v:38:y:2013:i:pa:p:76-85

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Intertemporal free lunch; Endogenous growth; R&D underinvestment; Transitional dynamics;

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  1. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May.
  2. Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2010. "Quantifying Optimal Growth Policy," IZA Discussion Papers 5007, Institute for the Study of Labor (IZA).
  3. Jones, Charles I & Williams, John C, 2000. " Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
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  6. Grossmann, Volker & Steger, Thomas M., 2013. "Optimal growth policy: The role of skill heterogeneity," Economics Letters, Elsevier, vol. 119(2), pages 162-164.
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  11. Trimborn, Timo & Koch, Karl-Josef & Steger, Thomas M., 2008. "Multidimensional Transitional Dynamics: A Simple Numerical Procedure," Macroeconomic Dynamics, Cambridge University Press, vol. 12(03), pages 301-319, June.
  12. Christopher Laincz & Pietro Peretto, 2006. "Scale effects in endogenous growth theory: an error of aggregation not specification," Journal of Economic Growth, Springer, vol. 11(3), pages 263-288, September.
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  18. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
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Citations

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Cited by:
  1. Casajus, André & Hüttner, Frank, 2012. "Null players, solidarity, and the egalitarian Shapley values," Working Papers 113, University of Leipzig, Faculty of Economics and Management Science.
  2. Casajus, André & Hüttner, Frank, 2012. "Nullifying vs. dummifying players or nullified vs. dummified players: The difference between the equal division value and the equal surplus division value," Working Papers 110, University of Leipzig, Faculty of Economics and Management Science.
  3. Casajus, André, 2012. "The Shapley value without efficiency and additivity," Working Papers 114, University of Leipzig, Faculty of Economics and Management Science.
  4. Steger, Thomas & Schäfer, Andreas, 2012. "Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62062, Verein für Socialpolitik / German Economic Association.
  5. Casajus, André, 2012. "Solidarity and fair taxation in TU games," Working Papers 111, University of Leipzig, Faculty of Economics and Management Science.
  6. Prettner, Klaus & Werner, Katharina, 2014. "Human capital, basic research, and applied research: Three dimensions of human knowledge and their differential growth effects," Center for European, Governance and Economic Development Research Discussion Papers 186, University of Goettingen, Department of Economics.
  7. Quaas, Georg & Köster, Robert, 2012. "Ein Modell für die Wirtschaftszweige der deutschen Volkswirtschaft: Das "MOGBOT" (Model of Germany's Branches of Trade)," Working Papers 106, University of Leipzig, Faculty of Economics and Management Science.
  8. Gawel, Erik, 2013. "Neuordnung der W-Besoldung: Ausgestaltung und verfassungsrechtliche Probleme der Komsumtionsregeln zur Anrechnung von Leistungsbezügen," Working Papers 115, University of Leipzig, Faculty of Economics and Management Science.
  9. Quaas, Georg, 2012. "Ein Nelson-Winter-Modell der deutschen Volkswirtschaft," Working Papers 112, University of Leipzig, Faculty of Economics and Management Science.

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