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Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents

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Author Info

  • Kazuo Nishimura

    ()
    (Institute of Economic Research, Kyoto University)

  • Carine Nourry

    ()
    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & Institut Universitaire de France)

  • Thomas Seegmuller

    ()
    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS)

  • Alain Venditti

    ()
    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC)

Abstract

We introduce public spending, financed through income taxation, in the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital-labor substitution is large enough to be compatible with capital income monotonicity. Moreover, unlike frameworks with a representative agent, our results do not require externalities in production and are compatible with a weakly elastic labor supply with respect to wage.

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Bibliographic Info

Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1314.

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Length: 33 pages
Date of creation: Mar 2013
Date of revision: 08 Feb 2013
Handle: RePEc:aim:wpaimx:1314

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Web page: http://www.amse-aixmarseille.fr/en
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Keywords: Endogenous cycles; indeterminacy; heterogeneous agents; public spending; endogenous labor supply; borrowing constraint.;

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References

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Cited by:
  1. Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2014. "On the (de)Stabilizing Effect of Public Debt In a Ramsey Model with Heterogeneous Agents," Discussion Paper Series DP2014-03, Research Institute for Economics & Business Administration, Kobe University.

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