Animal Spirits and Public Production in Slow Growth Economies
In this paper, we consider a discrete time version of the endogenous growth model developed by Barro , but augmented in order to consider public production. Policy solutions are characterized to maximize the social welfare and stabilize the economy. More intervention is required under a higher elasticity of intertemporal substitution, because the public good is a productive externality. As soon as the growth rate of the economy lowers, indeterminacy can be generated by higher degrees of private production, and, then, even a small proportion of public production can have a stabilizing effect. Moreover, the way the public dividends are used matters for the stability properties of the economy: public dividends are used to provide flows of public services and/or long-run infrastructures. According to the value of the elasticity of intertemporal substitution and the proportion of public and private production, a higher share of public dividends used to install infrastructures can stabilize the economy. Endogenous fluctuations are possible within the model for plausible calibrations.
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- Parent, Antoine & Rault, Christophe, 2004. "The Influences Affecting French Assets Abroad Prior to 1914," The Journal of Economic History, Cambridge University Press, vol. 64(02), pages 328-362, June.
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