Economic Growth With Optimal Public Spending Compositional
AbstractThis paper uses a one-sector, endogenous growth model to study optimal composition between public investment and consumption in government expenditure and its relationships with economic growth. Assuming a benevolent government which maximizes a representative household’s lifetime utilities, the paper determines the unique, interior public investment share in government’s budgets, which is determined by policy and structural parameters. It finds that the conventional determinants of economic growth now generate stronger growth effects, via their indirect impacts upon optimal public spending composition. The effects emerge from raising the marginal utility of private consumption, relative to the marginal utility of public consumption, thereby inducing public investment and increasing economic growth. Our quantitative results suggest that the growth effect is sizable. The large growth effect via optimal public investment in our model has implications to East Asian economic growth miracles where public investment share and economic growth are both higher than other area’s countries.
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Bibliographic InfoPaper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 03-A007.
Length: 27 pages
Date of creation: Dec 2003
Date of revision:
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Web page: http://www.econ.sinica.edu.tw/index.php?foreLang=en
More information through EDIRC
public consumption; public investment; economic growth;
Find related papers by JEL classification:
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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