Dynamic Fiscal Policies and Endogenous Growth
This paper studies the dynamic properties of an endogenous growth model in which government consumption and production services are financed by capital taxes. I generalize the existence and its stability property of commitment Ramsey equilibria when government spending is productive and taxation is distortionary. I then establish a sufficient condition for uniqueness of the (positive) balanced growth path and determinacy of transitional dynamics. The same sufficient condition ensures growth convergence in Barro-type endogenous fiscal policies. This modeling approach can be used by a large class of endogenous growth models which allow for market imperfections and optimal policies. In particular, a few implications for main results are discussed on economic integration.
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