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The Dynamic Effects of Government Spending Policies in a Two-Sector Endogenous Growth Model

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  • Devereux, Michael B
  • Love, David R F

Abstract

This paper investigates the impact of government spending policies in a two sector model of endogenous growth. Endogenous growth arises because all factors of production - physical and human capital, are reproducible. Both temporary and permanent government spending shocks are examined. The model implies that a permanent, lump-sum financed, increase in government spending raises the long-run growth rate. This occurs because the negative wealth effects of a spending increase will increase labor supply. On the other hand, an income-tax (or wage-tax) financed rise in government spending reduces the growth rate. The output effects of a temporary increase in government spending may be greater or less than a permanent increase in spending. Copyright 1995 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 27 (1995)
Issue (Month): 1 (February)
Pages: 232-56

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Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:1:p:232-56

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. John Creedy & Norman Gemmell, 2005. "Publicly financed education in an endogenous growth model," Journal of Economic Studies, Emerald Group Publishing, vol. 32(2), pages 114-131, May.
  2. Price V. Fishback & Valentina Kachanovskaya, 2010. "In Search of the Multiplier for Federal Spending in the States During the Great Depression," NBER Working Papers 16561, National Bureau of Economic Research, Inc.
  3. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. Xavier Raurich, 2001. "Indeterminancy and Government Spending in a Two-Sector Model of Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 210-229, January.
  5. Thomas Krichel & Paul Levine, 1996. "Dynamic Aspect of Growth and Fiscal Policy," School of Economics Discussion Papers 9601, School of Economics, University of Surrey, revised Nov 1997.
  6. Echevarría Olave, Cruz Angel, 2003. "Life Expectancy, Schooling Time and Endogenous Growth," DFAEII Working Papers 2002-11, University of the Basque Country - Department of Foundations of Economic Analysis II.
  7. Maria Carme Riera i Prunera, 2003. "Deficit, human capital and economic growth dynamics," Working Papers in Economics 102, Universitat de Barcelona. Espai de Recerca en Economia.
  8. Groneck, Max, 2008. "A Golden Rule of Public Finance or a Fixed Deficit Regime? Growth and Welfare Effects of Budget Rules," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-7, University of Cologne, FiFo Institute for Public Economics.
  9. Woon Gyu Choi & Michael B. Devereux, 2005. "Asymmetric Effects of Government Spending," IMF Working Papers 05/7, International Monetary Fund.
  10. Jhy-hwa Chen & Ching-chong Lai & Jhy-yuan Shieh, 2003. "Anticipated Environmental Policy and Transitional Dynamics in an Endogenous Growth Model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(2), pages 233-254, June.
  11. Ching-chong Lai & Jhy-yuan Shieh & Wen-Ya Chang, 2002. "Endogenous Growth and Defense Expenditures: A New Explanation of the Benoit Hypothesis," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(3), pages 179-186.
  12. Xin Long & Alessandra Pelloni & Robert Waldmann, 2008. "Lump-Sum Taxes in a R&D Model," CEIS Research Paper 120, Tor Vergata University, CEIS, revised 14 Jul 2008.
  13. Sigitas Karpavicius, 2009. "The Effects of Fiscal Instruments on the Economy of Lithuania," Bank of Lithuania Working Paper Series 4, Bank of Lithuania.
  14. Minea, Alexandru, 2008. "The Role of Public Spending in the Growth Theory Evolution," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(2), pages 99-120, June.
  15. Gemmell, Norman & Kneller, Richard & Sanz, Ismael, 2013. "The Growth Effects of Tax Rates in the OECD," Working Paper Series 2706, Victoria University of Wellington, Chair in Public Finance.

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