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Fiscal Policies in a Finite Horizon Model with the Spirit of Capitalism

  • Liutang Gong

    (Guanghua School of Management, Peking University)

  • Heng-fu Zou

    (Institute for Advanced Study, Wuhan University)

This paper examines the effects of government debt and deficit, income tax, and public investment on economy in a endogenous growth model with finite-horizon, the spirit of capitalism, and government expenditure. It shows that with the increasing of the spirit of capitalism and life horizon (the probability of death will be decreasing), the growth rate and the public investment (government expenditure-output ratio) will be increasing; but the consumption-capital ratio will be decreasing; The effects of income tax rate and public investment on growth rate and consumption-capital ratio appear Laffer curve style, thus we present the optimal income tax rate and public investment, which is different from Barro (1990), the optimal income tax rate and public investment will not be equal yet. The effects of government debt and social security on economy are included also.

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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 102.

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Length: 32 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:cuf:wpaper:102
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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  1. Gong, Liutang & Zou, Heng-Fu, 2001. "Money, Social Status, and Capital Accumulation in a Cash-in-Advance Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 284-93, May.
  2. Carlos Garriga, 2001. "Optimal Fiscal Policy in Overlapping Generations Models," Working Papers in Economics 66, Universitat de Barcelona. Espai de Recerca en Economia.
  3. Liutang Gong & Heng‐Fu Zou, 2011. "Public Expenditures, Taxes, Federal Transfers, and Endogenous Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(6), pages 973-991, December.
  4. Gurdip S. Bakshi & Zhiwu Chen, 1996. "The Spirit of Capitalism and Stock-Market Prices," CEMA Working Papers 511, China Economics and Management Academy, Central University of Finance and Economics.
  5. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  6. Fisher, Walter H., 2001. "Status Preference, Wealth, and Dynamics in the Open Economy," Economics Series 99, Institute for Advanced Studies.
  7. Fershtman, Chaim & Murphy, Kevin M & Weiss, Yoram, 1996. "Social Status, Education, and Growth," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 108-32, February.
  8. Gong, Liutang & Zou, Heng-fu, 2002. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 247-270, February.
  9. Fershtman, C. & Weiss, Y., 1991. "Social Status , Culture and Economic Performance," Papers 32-91, Tel Aviv.
  10. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  11. Robert G. King & Sergio Rebelo, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," NBER Working Papers 3338, National Bureau of Economic Research, Inc.
  12. Gong, Liutang & Zou, Heng-fu, 2002. "Optimal taxation and intergovernmental transfer in a dynamic model with multiple levels of government," Journal of Economic Dynamics and Control, Elsevier, vol. 26(12), pages 1975-2003, October.
  13. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  14. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
  15. Barro, Robert J., 1992. "Human capital and economic growth," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 199-216.
  16. Saint-Paul, G., 1991. "Fiscal Policy In An Endogenous Growth Model," DELTA Working Papers 91-04, DELTA (Ecole normale supérieure).
  17. Heng-fu Zou, 1995. "The spirit of capitalism and savings behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 131-143, September.
  18. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
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