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

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  • Kazuo Nishimura

    (Institute of Economic Research, Kyoto University - Kyoto University)

  • Carine Nourry

    ()
    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)

  • Thomas Seegmuller

    ()
    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))

  • Alain Venditti

    ()
    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), EDHEC Business School - Département Comptabilité, Droit, Finance et Economie)

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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Paper provided by HAL in its series Working Papers with number halshs-00796698.

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Date of creation: Feb 2013
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Handle: RePEc:hal:wpaper:halshs-00796698

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Keywords: endogenous cycles; indeterminacy; heterogeneous agents; public spending; endogenous labor supply; borrowing constraint;

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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, Research Institute for Economics & Business Administration, Kobe University DP2014-03, Research Institute for Economics & Business Administration, Kobe University.

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