Complementarity in Models of Public Finance and Endogenous Growth
AbstractThis paper considers the effects of complementarity in private production between private and public inputs on optimal fiscal policy under the objective of growth maximization. Using an endogenous growth model with public finance and CES technology, it derives two central results. First, it shows that with complementarity, growth-maximizing fiscal policy is also affected by preference parameters, the degree of complementarity and the stock-flow properties of public inputs to private production. Second, it shows that optimal public spending composition and taxation are interrelated and also depend on the efficiency of public spending under growth maximization. Both results contrast with standard findings in the literature that are typically based on the assumption of Cobb-Douglas technology, and have important lessons for policy settings.
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Bibliographic InfoPaper provided by Victoria University of Wellington, Chair in Public Finance in its series Working Paper Series with number 3136.
Date of creation: 2014
Date of revision:
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Postal: School of Accounting & Commercial Law, Victoria University of Wellington, PO Box 600, Wellington, New Zealand
Phone: +64 (4) 463 5775
Fax: +64 (4) 463 5076
Web page: http://www.victoria.ac.nz/sacl/about/chair-in-public-finance
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Complementarity; Economic growth; Productive public spending; Optimal fiscal policy;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-GRO-2014-02-02 (Economic Growth)
- NEP-PBE-2014-02-02 (Public Economics)
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