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A model of the optimal allocation of government expenditures

Author

Listed:
  • FAN Simon,

    (Lingnan University)

  • PANG Yu,

    (Macau University of Science and Technology)

  • PESTIEAU Pierre,

    (Université de Liège, CORE, and Toulouse School of Economics)

Abstract

Government expenditures can be used for various socio-economic objectives, including public education, consumption of public goods and services, and social protection. This paper analyzes the optimal allocation of public expenditures among these competing functions. We establish an overlapping generations model with heterogeneous individuals in which the government optimally chooses income tax, transfer payment, educational spending, and public consumption. Our model characterizes the transitional dynamics and the steady state of each function with and without a pay-as-you-go international contract. We also conduct a simulation illustrating that the presence of an intergenerational contract may raise public consumption and social welfare in the ssteady state.

Suggested Citation

  • FAN Simon, & PANG Yu, & PESTIEAU Pierre,, 2019. "A model of the optimal allocation of government expenditures," LIDAM Discussion Papers CORE 2019018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2019018
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    Cited by:

    1. Masashi Tanaka, 2020. "Human capital investment, credentialing, and wage differentials," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 992-1016, August.
    2. Tadej Košmerl & Marko Radovan & Danijela Makovec Radovan, 2024. "The Funding Puzzle in Adult Education for Sustainable Development: A Case Study of Slovenia," Sustainability, MDPI, vol. 16(18), pages 1-17, September.
    3. Thai Ha‐Huy & Cuong Le Van & Thi‐Do‐Hanh Nguyen, 2020. "Optimal growth when consumption takes time," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1442-1461, September.
    4. Keishun Suzuki, 2022. "Corporate tax cuts in a Schumpeterian growth model with an endogenous market structure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(2), pages 324-347, April.
    5. repec:hal:cesptp:halshs-04310371 is not listed on IDEAS
    6. Cheng, Shulei & Wang, Ping & Chen, Boyang & Fan, Wei, 2022. "Decoupling and decomposition analysis of CO2 emissions from government spending in China," Energy, Elsevier, vol. 243(C).
    7. Hafiz Syed Mohsin Abbas & Sadia Abbas & Samreen Gillani & Xiaodong Xu, 2025. "Role of Digital-Government, Regional Integration, and Government Expenditures on Public Health Services in Selected Asian Economies," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 178(3), pages 1201-1225, July.
    8. Pietro Reichlin, 2020. "Social welfare, parental altruism, and inequality," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1391-1419, September.
    9. Anne Villamil & Xiaobing Wang & Ning Xue, 2021. "A political foundation of public investment and welfare spending," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(4), pages 660-690, August.
    10. Tooba Pervaiz Banday & Ekrem Erdem, 2024. "ICT and declining labor productivity in OECD," SN Business & Economics, Springer, vol. 4(3), pages 1-19, March.
    11. Mahsa Jahandideh, 2020. "Resource‐driven victory," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 877-898, August.
    12. Rabah Amir & Helmuth Cremer & Rim Lahmandi‐Ayed, 2020. "Introduction to the thematic issue on government‐provided services," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 839-844, August.
    13. Limor Hatsor & Itzhak Zilcha, 2021. "Subsidizing heterogeneous higher education systems," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(2), pages 318-344, April.

    More about this item

    Keywords

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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