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Fiscal and Monetary Policy in an Endogenous Growth Model with Public Capital


  • Toshiki Tamai


This paper develops an endogenous growth model in which the government finances its public investment using both income taxation and seigniorage. Arguments presented in this paper show that public investment financed by seigniorage gradually pulls up the growth rate of consumption and overshoots the inflation rate. Furthermore, we show that public investment financed by an income tax brings about an overshooting of the inflation rate and a simultaneous undershooting of the growth rate of consumption. These dynamic effects influence welfare dynamics. Taking account of transitional effects, we derive the welfare effects of fiscal and monetary policy.

Suggested Citation

  • Toshiki Tamai, 2008. "Fiscal and Monetary Policy in an Endogenous Growth Model with Public Capital," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(4), pages 403-421, December.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200812)64:4_403:fampia_2.0.tx_2-b
    DOI: 10.1628/001522108X397606

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    References listed on IDEAS

    1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    2. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    3. Basu, Parantap, 2001. "Reserve Ratio, Seigniorage and Growth," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 397-416, July.
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    Cited by:

    1. Tamai, Toshiki, 2016. "Public investment, the rate of return, and optimal fiscal policy in a stochastically growing economy," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 1-17.
    2. Fujisaki, Seiya, 2016. "Macroeconomic Effect of Consumption Tax on ”Dynamic” and ”Myopic” Agents," MPRA Paper 73500, University Library of Munich, Germany.

    More about this item


    fiscal policy; monetary policy; economic growth; welfare;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development


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