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.
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 Victoria University of Wellington, Chair in Public Finance in its series Working Paper Series with number 3136.
Date of creation: 2014
Date of revision:
Contact details of provider:
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
More information through EDIRC
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)
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.:
- Santiago Acosta Ormaechea & Jiae Yoo, 2012. "Tax Composition and Growth," IMF Working Papers 12/257, International Monetary Fund.
- Cecilia Garcia Penalosa & Stephen J. Turnovsky, 2003.
"Second-Best Optimal Taxation of Capital and Labor in a Developing Economy,"
IDEP Working Papers
0307, Institut d'economie publique (IDEP), Marseille, France.
- Garcia Penalosa, Cecilia & Turnovsky, Stephen J., 2005. "Second-best optimal taxation of capital and labor in a developing economy," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1045-1074, June.
- Cecilia Garcia-Penalosa & Stephen Turnovsky, 2004. "Second-Best Optimal Taxation of Capital and Labor in a Developing Economy," Working Papers UWEC-2004-05-P, University of Washington, Department of Economics, revised Apr 2004.
- Todd D. Mattina & Victoria Gunnarsson, 2007. "Budget Rigidity and Expenditure Efficiency in Slovenia," IMF Working Papers 07/131, International Monetary Fund.
- Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
- Christopher Heady & Åsa Johansson & Jens Arnold & Bert Brys & Laura Vartia, 2009.
"Tax Policy for Economic Recovery and Growth,"
Studies in Economics
0925, Department of Economics, University of Kent.
- John Creedy, 2009. "The Personal Income Tax Structure: Theory and Policy," Department of Economics - Working Papers Series 1063, The University of Melbourne.
- Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996.
"The composition of public expenditure and economic growth,"
CEMA Working Papers
77, China Economics and Management Academy, Central University of Finance and Economics.
- Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
- Norman Gemmell & Florian Misch & Blanca Moreno-Dodson, 2012.
"Public Spending for Long-Run Growth: A Practitioners’ View,"
World Bank - Economic Premise,
The World Bank, issue 99, pages 1-4, December.
- Norman Gemmell & Florian Misch & Blanca Moreno-Dodson, 2012. "Public Spending for Long-Run Growth : A Practitioners' View," World Bank Other Operational Studies 17061, The World Bank.
- Sugata Ghosh & Andros Gregoriou, 2008. "The composition of government spending and growth: is current or capital spending better?," Oxford Economic Papers, Oxford University Press, vol. 60(3), pages 484-516, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Library Technology Services).
If references are entirely missing, you can add them using this form.