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Indeterminancy and Government Spending in a Two-Sector Model of Endogenous Growth

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Author Info
Xavier Raurich (Universitat de Girona)

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Abstract

This paper analyzes the dynamic behaviour of a two-sector model of endogenous growth with unproductive government spending. In this model, we prove that the subspace of the parameter space where the equilibrium exhibits indeterminacy is larger, the large the fraction of government revenues devoted to government expenditures is, the more patient consumers are, and the more consumers are willing to substitute consumption intertemporally. Our analysis shows that, with the introduction of unproductive government spending, indterminancy becomes a plausible property of the dynamic equilibium in a two-sector growth moel with factor taxes as the only market imperfection. We also show that, when the fraction of government revenues devoted to government expenditures is large, plausible fiscal policies may cause the equilibrium to exhibit indeterminacy. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.2000.0110
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 4 (2001)
Issue (Month): 1 (January)
Pages: 210-229
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Handle: RePEc:red:issued:v:4:y:2001:i:1:p:210-229

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Related research
Keywords: indeterminacy; government spending; two-sector model; endogenous growth;

Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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  2. Mulligan, Casey B & Sala-i-Martin, Xavier, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 739-73, August. [Downloadable!] (restricted)
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  3. Mino, Kazuo, 1996. "Analysis of a Two-Sector Model of Endogenous Growth with Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 227-51, February.
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  8. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June. [Downloadable!] (restricted)
  9. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1995. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Russell Cooper & John Haltiwanger, 1995. "Les complémentarités en macroéconomie: éléments théoriques et empirique," Annales d'Economie et de Statistique, ADRES, issue 37-38, pages 11, Janvier-J. [Downloadable!]
  11. Devereux, Michael B & Love, David R F, 1995. "The Dynamic Effects of Government Spending Policies in a Two-Sector Endogenous Growth Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 232-56, February. [Downloadable!] (restricted)
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  12. Bond, Eric W. & Wang, Ping & Yip, Chong K., 1996. "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory, Elsevier, vol. 68(1), pages 149-173, January. [Downloadable!] (restricted)
    Other versions:
  13. Caballe, Jordi & Santos, Manuel S, 1993. "On Endogenous Growth with Physical and Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1042-67, December. [Downloadable!] (restricted)
  14. Boldrin, Michele & Rustichini, Aldo, 1994. "Growth and Indeterminacy in Dynamic Models with Externalities," Econometrica, Econometric Society, vol. 62(2), pages 323-42, March. [Downloadable!] (restricted)
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