A Neoclassical Growth Model with Public Spending
AbstractThis paper analyses the effect of public expenditures in the context of a modified Solow model of capital accumulation with optimising agents. The model identifies optimal government size and optimal composition of public expenditures which maximize the rate of growth in the dynamics to the steady state and maximize the long run level of per capita income. Different allocations of public resources lead to different growth rates in the transitional dynamics depending on their elasticity. However effects from fiscal policy are only temporary and disappear in the steady state. Finally we argue that neglecting the non- linear nature of the relationship between government spending and growth may lead empirical studies to biased results.
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Bibliographic InfoPaper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201033.
Date of creation: 2010
Date of revision:
neoclassical and augmented growth models; fiscal policy;
Find related papers by JEL classification:
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
- NEP-DGE-2011-01-30 (Dynamic General Equilibrium)
- NEP-FDG-2011-01-30 (Financial Development & Growth)
- NEP-MAC-2011-01-30 (Macroeconomics)
- NEP-PBE-2011-01-30 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Manoj Atolia & Santanu Chatterjee & Stephen J. Turnovsky, 2008.
"How Misleading is Linearization? Evaluating the Dynamics of the Neoclassical Growth Model,"
wp2008_11_01, Department of Economics, Florida State University, revised Sep 2008.
- Atolia, Manoj & Chatterjee, Santanu & Turnovsky, Stephen J., 2010. "How misleading is linearization? Evaluating the dynamics of the neoclassical growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1550-1571, September.
- Bajo-Rubio, Oscar, 2000. "A further generalization of the Solow growth model: the role of the public sector," Economics Letters, Elsevier, vol. 68(1), pages 79-84, July.
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