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Fiscal Policy, Home Production and Growth Dynamics

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  • Hu, Yunfang
  • Mino, Kazuo

Abstract

Using an endogenous growth model with physical and human capital, we explore short-run as well as long-run effects of fiscal policy in the presence of households' production activities. We first show that our model has a unique balanced-growth path that satisfies saddlepoint stability. We then conduct fiscal policy experiments both in and out of the balanced-growth equilibrium. The main focus of the paper is to study the dynamic behavior of the model economy and the effects of fiscal actions analytically. In so doing, we examine how the presence of home production yields the policy implications that are different from those obtained in the standard setting that does not consider home production.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17017.

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Date of creation: Oct 2004
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Handle: RePEc:pra:mprapa:17017

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Keywords: fiscal policy; home production; multi-sector endogenous growth model.;

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  1. Ortigueira, Salvador & Santos, Manuel S., 2002. "Equilibrium Dynamics in a Two-Sector Model with Taxes," Journal of Economic Theory, Elsevier, vol. 105(1), pages 99-119, July.
  2. Salvador Ortigueira, 1997. "A Dynamic Analysis of an Endogenous Growth Model with Leisure," Working Papers 9705, Centro de Investigacion Economica, ITAM.
  3. Greenwood, J. & Hercowitz, Z., 1991. "The Allocation of Capital and Time Over the Business Cycle," RCER Working Papers 268, University of Rochester - Center for Economic Research (RCER).
  4. Einarsson Tor & Marquis Milton Harrison, 2001. "Fiscal Policy and Human Capital Accumulation in a Home Production Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-33, July.
  5. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  6. Caballe, Jordi & Santos, Manuel S, 1993. "On Endogenous Growth with Physical and Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1042-67, December.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  8. Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1998. "Growth Effects of Income and Consumption Taxes," CEPR Discussion Papers 1979, C.E.P.R. Discussion Papers.
  9. Eisner, Robert, 1988. "Extended Accounts for National Income and Product," Journal of Economic Literature, American Economic Association, vol. 26(4), pages 1611-84, December.
  10. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  11. Larry E. Jones & Rodolfo E. Manuelli & Ellen R. McGrattan, 2003. "Why are married women working so much?," Staff Report 317, Federal Reserve Bank of Minneapolis.
  12. Ellen McGrattan & Richard Rogerson & Randall Wright, 1995. "An equilibrium model of the business cycle with household production and fiscal policy," Staff Report 191, Federal Reserve Bank of Minneapolis.
  13. Bond, Eric W. & Wang, Ping & Yip, Chong K., 1996. "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory, Elsevier, vol. 68(1), pages 149-173, January.
  14. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank.
  15. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
  16. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S, 1999. "A Two-Sector Model of Endogenous Growth with Leisure," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 609-31, July.
  17. Stephen L. Parente & Richard Rogerson & Randall Wright, 2000. "Homework in Development Economics: Household Production and the Wealth of Nations," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 680-687, August.
  18. Mino, Kazuo, 1996. "Analysis of a Two-Sector Model of Endogenous Growth with Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 227-51, February.
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