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A Note on Economic Growth with Subsistence Consumption

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  • Strulik, Holger

Abstract

It is well known that the performance of simple models of economic growth improves substantially through the introduction of subsistence consumption. How to compute subsistence needs, however, is a difficult and controversially discussed issue. Here, I reconsider the linear (Ak) growth model with subsistence consumption and show that the evolution of savings rates and economic growth rates over time is independent from the size of subsistence needs. The model is thus more general and less subject to arbitrariness than it might have been thought initially. Quantitatively, it is shown that, although there is no degree of freedom to manipulate transitional dynamics, the model approximates the historical evolution of savings rates and growth rates reasonably well.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-405.

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Length: 11 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:han:dpaper:dp-405

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Keywords: economic growth; saving; subsistence needs;

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References

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  1. Loayza, N. & Schmidt, K. & Serven, L., 1999. "What Drives Private Saving Across the World?," Papers, Cambridge - Risk, Information & Quantity Signals 47, Cambridge - Risk, Information & Quantity Signals.
  2. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the rich save more?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-52, Board of Governors of the Federal Reserve System (U.S.).
  3. Oded_Galor, 2004. "From Stagnation to Growth:Unified Growth Theory," Working Papers 2004-15, Brown University, Department of Economics.
  4. Sharif, Mohammed, 1986. "The Concept and measurement of subsistence: A survey of the literature," World Development, Elsevier, vol. 14(5), pages 555-577, May.
  5. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-42, Board of Governors of the Federal Reserve System (U.S.).
  6. Kraay, Aart & Raddatz, Claudio, 2007. "Poverty traps, aid, and growth," Journal of Development Economics, Elsevier, vol. 82(2), pages 315-347, March.
  7. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
  8. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 729-58, August.
  9. Dalgaard, Carl-Johan & Strulik, Holger, 2007. "A Bioeconomic Foundation of the Malthusian Equilibrium: Body Size and Population Size in the Long-Run," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-373, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
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Cited by:
  1. Holger Strulik, 2014. "Knowledge And Growth In The Very Long Run," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 459-482, 05.
  2. Strulik, Holger, 2012. "Poverty, voracity, and growth," Journal of Development Economics, Elsevier, vol. 97(2), pages 396-403.
  3. Sharp, Paul & Strulik, Holger & Weisdorf, Jacob, 2012. "The determinants of income in a Malthusian equilibrium," Journal of Development Economics, Elsevier, vol. 97(1), pages 112-117.
  4. Dalgaard, Carl-Johan & Strulik, Holger, 2013. "The history augmented Solow model," Center for European, Governance and Economic Development Research Discussion Papers 151, University of Goettingen, Department of Economics.
  5. Strulik, Holger, 2013. "Hyperbolical discounting and endogenous growth," Center for European, Governance and Economic Development Research Discussion Papers 175, University of Goettingen, Department of Economics.
  6. Strulik, Holger, 2009. "Patience and Prosperity," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-426, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  7. Levaggi, Rosella & Menoncin, Francesco, 2013. "Optimal dynamic tax evasion," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(11), pages 2157-2167.

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