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

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  • OA Carboni

  • P. Russu

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 utilities in a centralized economy. The analysis supplies a closed form solution. Moreover, with one restriction on the parameters (α=σ) we fully determine the solutions path for all variables of the model and determine the conditions for balanced growth.

Suggested Citation

  • OA Carboni & P. Russu, 2012. "A Model of Economic Growth with Public Finance: Dynamics and Analytic Solution," Working Paper CRENoS 201229, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:201229
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    1. is not listed on IDEAS
    2. Khatai Aliyev & Ceyhun Mikayilov, 2016. "Does the Budget Expenditure Composition Matter for Long-Run Economic Growth in a Resource Rich Country? Evidence from Azerbaijan," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(2), pages 147-168, June.

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    Keywords

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    JEL classification:

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

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