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A Model of Economic Growth with Public Finance: Dynamics and Analytic Solution

Author

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  • Oliviero A. Carboni

    (DiSEA and CRENoS, University of Sassari, Italy)

  • Paolo Russu

    (DiSEA, University of Sassari, Italy)

Abstract

: This paper studies the equilibrium dynamics of a growth model with public finance where two different allocations of public resources are considered. The model simultaneously determines the optimal shares of consumption, capital accumulation, taxes and composition of the two different public expenditures which maximize a representative household's lifetime utility in a centralized economy. The analysis supplies a closed form solution. Moreover, with one restriction on the parameters (? = ? ) we fully determine the solutions path for all variables of the model and determine the conditions for balanced growth.

Suggested Citation

  • Oliviero A. Carboni & Paolo Russu, 2013. "A Model of Economic Growth with Public Finance: Dynamics and Analytic Solution," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 1-13.
    • Handle: RePEc:eco:journ1:2013-01-1
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    More about this item

    Keywords

    Growth models; Fiscal policy; Public spending composition;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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