Government Spending in a Simple Model of Endogenous Growth
AbstractI extend existing models of endogenous economic growth to incorporate a government sector. Production involves private capital (broadly defined) and public services. There is constant returns to scale in the two factors, but diminishing returns to each separately. Public services are financed by a flat- rate income tax. The economy's growth rate and saving rate initially rise with the ratio of productive government expenditures to CNP, g/y, but each rate eventually reaches a peak and subsequently declines. If the production function is Cobb-Douglas with an exponent o for public services, then the value g/y = a maximizes the growth rate, and also maximizes the utility attained by the representative consumer. The distortion from the income tax implies that the decentralized equilibrium is not Pareto optimal; in particular, the growth and saving rates are too low from a social perspective. In a command optimum, growth and saving rates are higher, but g/y = a turns out still to be the best choice for the size of government. The command optimum can be sustained by picking the expenditure ratio, g/y = a, and then financing this spending by lump sum taxes. If the share of productive spending, g/y, were chosen randomly, then the model would predict a non-monotonic relation between g/y and the economy's long- term growth and saving rates. However, for optimizing governments, the model predicts an inverse association between g/y and the rates of growth and saving.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2588.
Date of creation: May 1988
Date of revision:
Publication status: published as Journal of Political Economy, Vol. 98, No. 5, Pt. 2, pp. S103-S125, (October 1990).
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
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.:
- Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, Elsevier, vol. 24(2), pages 259-276, September.
- Aschauer, David Alan, 1989.
"Is public expenditure productive?,"
Journal of Monetary Economics, Elsevier,
Elsevier, vol. 23(2), pages 177-200, March.
- Gary S. Becker & Robert J. Barro, .
"A Reformulation of the Economic Theory of Fertility,"
University of Chicago - Population Research Center, Chicago - Population Research Center
85-11, Chicago - Population Research Center.
- Becker, Gary S & Barro, Robert J, 1988. "A Reformulation of the Economic Theory of Fertility," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(1), pages 1-25, February.
- Gary S. Becker & Robert J. Barro, 1986. "A Reformulation of the Economic Theory of Fertility," NBER Working Papers 1793, National Bureau of Economic Research, Inc.
- Romer, Paul M, 1986.
"Increasing Returns and Long-run Growth,"
Journal of Political Economy, University of Chicago Press,
University of Chicago Press, vol. 94(5), pages 1002-37, October.
- Sergio T. Rebelo, 1990.
"Long Run Policy Analysis and Long Run Growth,"
NBER Working Papers
3325, National Bureau of Economic Research, Inc.
- Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 500-521, June.
- Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(2), pages 141-163, September.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
- Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Politique industrielle et systÃ¨me dâ€™innovation dans les pays en voie de dÃ©veloppement
by email@example.com (JihÃ¨ne Malek) in BS Initiative on 2014-06-03 10:42:25
by å é in 延宕与悬置 on 2010-03-21 19:41:00
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.