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Growth and fluctuations: The role of public dividends and public spending

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  • Stefano Bosi

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

  • Carine Nourry

Abstract

In this paper, we consider a discrete-time version of the endogenous growth model developed by Barro [Barro, R.J., 1990. Government spending in a simple model of endogenous growth. Journal of Political Economy 98, 103-125], but augmented in order to envisage a public participation in the production of private goods. Public dividends are invested in order to provide a public good; in turn, the public good plays a role of indispensable production externality and, eventually, of growth engine. For what concerns the production of private goods, we find that an optimal policy is always based on a positive participation of the government as shareholder; also, when growth is slow, a public intervention or large substitution effects stabilize the economy. A right mix of short-run services and long-run infrastructures is suggested in slow economies to rule out expectation-driven fluctuations. Infrastructures are mainly recommended in presence of moderate income effects, while services are recommended in presence of strong income effects. © 2006 Elsevier B.V. All rights reserved.

Suggested Citation

  • Stefano Bosi & Carine Nourry, 2007. "Growth and fluctuations: The role of public dividends and public spending," Post-Print hal-02877989, HAL.
    • Handle: RePEc:hal:journl:hal-02877989
    DOI: 10.1016/j.jmateco.2006.06.005
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