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Inflationary Financing of Government Expenditure in an Endogenous Growth Model

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  • Palokangas Tapio

    (University of Helsinki,Helsinki, Finland)

Abstract

This paper analyses the role of inflation in economies with endogenous growth and congestion in public services. Optimal policy rules are derived for public services and investment. The other findings are as follows. Monetary policy should maximize economic growth. The more inefficient the public sector is, the higher the growth-maximizing inflation rate is. If a currency union accepts a new member with an inefficient public sector, this will boost inflation in the union and decrease growth and welfare in all member economies of the union.

Suggested Citation

  • Palokangas Tapio, 2003. "Inflationary Financing of Government Expenditure in an Endogenous Growth Model," German Economic Review, De Gruyter, vol. 4(1), pages 121-137, February.
    • Handle: RePEc:bpj:germec:v:4:y:2003:i:1:p:121-137
    DOI: 10.1111/1468-0475.00075
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    References listed on IDEAS

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