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Indeterminacy in a Two-sector Endogenous Growth Model with Productive Government Spending

Author

Listed:
  • Yunfang Hu

    (Graguate School of Economics, Kobe University, Japan)

  • Ryoji Ohdoi

    (Graduate School of Economics, Osaka University, Japan)

  • Koji Shimomura

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

We extend the Barro (1990) model of endogenous growth to a two-sector one which consists of pure consumption and investment goods. It is possible that the extended version has a unique balanced growth rate such that for given initial values of state variables, (i) the extended model economy grows at the unique rate right from the beginning or (ii) it has a continuum of equilibrium paths whose growth rates commonly converge to the balanced growth rate. That is, unlike the original one-sector model, it has transitional dynamics in case (ii). We also show that the effects of small changes in some parameters on the balanced growth rate and the price of the consumption good in terms of the investment good are opposite between (i) and (ii).

Suggested Citation

  • Yunfang Hu & Ryoji Ohdoi & Koji Shimomura, 2004. "Indeterminacy in a Two-sector Endogenous Growth Model with Productive Government Spending," Discussion Paper Series 149, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:149
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    References listed on IDEAS

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    Cited by:

    1. wei-bin zhang, 2017. "Business Cycles with Progressive Income Taxation," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 5(2), pages 78-95, November.
    2. Gupta, Manash Ranjan & Barman, Trishita Ray, 2010. "Health, infrastructure, environment and endogenous growth," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 657-673, June.
    3. repec:hit:hitjcm:v:56:y:2015:i:1:p:73-91 is not listed on IDEAS
    4. Simon Wiederhold, 2012. "The Role of Public Procurement in Innovation: Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 43.
    5. Shu‐Hua Chen & Jang‐Ting Guo, 2018. "On Indeterminacy and Growth under Progressive Taxation and Utility‐Generating Government Spending," Pacific Economic Review, Wiley Blackwell, vol. 23(3), pages 533-543, August.
    6. Simon Wiederhold, 2009. "Government Spending Composition in a Simple Model of Schumpeterian Growth," Jena Economics Research Papers 2009-101, Friedrich-Schiller-University Jena.
    7. Pierre‐Richard Agénor, 2011. "Schooling and Public Capital in a Model of Endogenous Growth," Economica, London School of Economics and Political Science, vol. 78(309), pages 108-132, January.
    8. Chen, Shu-Hua & Guo, Jang-Ting, 2014. "Progressive taxation and macroeconomic (in)stability with utility-generating government spending," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 174-183.
    9. Shu-Hua Chen & Jang-Ting Guo, 2019. "Progressive taxation as an automatic destabilizer under endogenous growth," Journal of Economics, Springer, vol. 127(1), pages 47-71, June.
    10. Gupta, Manash Ranjan & Barman, Trishita Ray, 2009. "Fiscal policies, environmental pollution and economic growth," Economic Modelling, Elsevier, vol. 26(5), pages 1018-1028, September.
    11. Wei Bin Zhang, 2015. "Progressive Income Taxation and Economic Growth with Endogenous Labor Supply and Public Good," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 1, September.
    12. Trishita Ray Barman & Manash Ranjan Gupta, 2010. "Public Expenditure, Environment, and Economic Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(6), pages 1109-1134, December.
    13. Shu‐Hua Chen & Jang‐Ting Guo, 2013. "On indeterminacy and growth under progressive taxation and productive government spending," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(3), pages 865-880, August.
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    16. Wei-bin ZHANG, 2020. "Corruption and Public Service in an Extended Solowian Growth Model with Endogenous Labor Supply," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 7(2), pages 1-20, July.

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    More about this item

    Keywords

    Public services; Indeterminacy; A continuum of equilibrium paths; Two-sector endogenous growth;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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