Finite lifetimes and government spending in an endogenous growth model
This paper studies the long-run effects of government spending and taxation in an endogenous growth model with finite lived agents. Public expenditures are classified according to their type: Type I expenditures enter as inputs into the production function. Type II expenditures enter as goods into the utility function. Mourmouras and Lee (1999) demonstrated that when only Type I expenditures are incorporated into the analysis, the tax rate that maximizes the welfare of the average agent is invariant to life expectancy. It will be demonstrated that their result no long holds when their framework is extended to incorporate Type II expenditures..
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