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The Macroeconomics of TANSTAAFL

  • Volker Grossmann
  • Thomas Steger
  • Timo Trimborn

This paper shows that dynamic inefficiency can occur in dynamic general equilibrium models with fully optimizing, infinitely-lived households even in a situation with underinvestment. We identify necessary conditions for such a possibility and illustrate it in a standard R&D-based growth model. Calibrating the model to the US, we show that a moderate increase in the R&D subsidy indeed leads to an intertemporal free lunch (i.e., an increase in per capita consumption at all times). Hence, Milton Friedman’s conjecture There ain’t no such thing as a free lunch (TANSTAAFL) may not apply.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3651.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3651
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  5. Karl-Josef Koch & Timo Trimborn & Thomas M. Steger, 2005. "Multi-Dimensional Transitional Dynamics: A Simple Numerical Procedure," Volkswirtschaftliche Diskussionsbeiträge 121-05, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  6. Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2011. "Dynamically optimal R&D subsidization," Working Papers 97, University of Leipzig, Faculty of Economics and Management Science.
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  18. Martinet, Vincent, 2011. "A characterization of sustainability with indicators," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 183-197, March.
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