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Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents

  • Kazuo Nishimura

    (Institute of Economic Research, Kyoto University - Kyoto University)

  • Carine Nourry

    ()

    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)

  • Thomas Seegmuller

    ()

    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))

  • Alain Venditti

    ()

    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), EDHEC Business School - Département Comptabilité, Droit, Finance et Economie)

We introduce public spending, financed through income taxation, in the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital-labor substitution is large enough to be compatible with capital income monotonicity. Moreover, unlike frameworks with a representative agent, our results do not require externalities in production and are compatible with a weakly elastic labor supply with respect to wage.

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Paper provided by HAL in its series Working Papers with number halshs-00796698.

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Date of creation: Feb 2013
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Handle: RePEc:hal:wpaper:halshs-00796698
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  1. Stefano Bosi & Thomas Seegmuller, 2008. "On the Role of Progressive Taxation in a Ramsey Model with Heterogeneous Households," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00331299, HAL.
  2. Jean-Michel Grandmont & P, A, Pintus & R, De Vilder, 1997. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Working Papers 97-28, Centre de Recherche en Economie et Statistique.
  3. Sorger, Gerhard, 2002. "On the Long-Run Distribution of Capital in the Ramsey Model," Journal of Economic Theory, Elsevier, vol. 105(1), pages 226-243, July.
  4. Le Van, Cuong & Nguyen, Manh-Hung & Vailakis, Yiannis, 2007. "Equilibrium dynamics in an aggregative model of capital accumulation with heterogeneous agents and elastic labor," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 287-317, April.
  5. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2013. "On existence, effciency and bubbles of Ramsey equilibrium with borrowing constraints," Working Papers 15, Development and Policies Research Center (DEPOCEN), Vietnam.
  6. Stefano Bosi & Thomas Seegmuller, 2007. "On the Ramsey equilibrium with heterogeneous consumers and endogenous labor supply," Documents de travail du Centre d'Economie de la Sorbonne v07003a, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jul 2007.
  7. Lloyd-Braga, Teresa & Modesto, Leonor & Seegmuller, Thomas, 2006. "Tax Rate Variability and Public Spending as Sources of Inderterminacy," CEPR Discussion Papers 5796, C.E.P.R. Discussion Papers.
  8. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
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  10. Richard Rogerson & Johanna Wallenius, 2007. "Micro and Macro Elasticities in a Life Cycle Model With Taxes," NBER Working Papers 13017, National Bureau of Economic Research, Inc.
  11. Becker, Robert A & Foias, Ciprian, 1994. "The Local Bifurcation of Ramsey Equilibrium," Economic Theory, Springer, vol. 4(5), pages 719-44, August.
  12. LE VAN, Cuong & VAILAKIS, Yiannis, . "Existence of a competitive equilibrium in a one sector growth model with heterogeneous agents and irreversible investment," CORE Discussion Papers RP -1762, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Becker, Robert A, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 375-82, September.
  14. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," NBER Working Papers 8896, National Bureau of Economic Research, Inc.
  15. MICHEL, Philippe & PESTIEAU, Pierre, . "Fiscal policy when individuals differ with regard to altruism and labor supply," CORE Discussion Papers RP -1381, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
  17. Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers 9373, National Bureau of Economic Research, Inc.
  18. Cazzavillan, Guido, 1996. "Public Spending, Endogenous Growth, and Endogenous Fluctuations," Journal of Economic Theory, Elsevier, vol. 71(2), pages 394-415, November.
  19. Ni, Shawn, 1995. "An empirical analysis on the substitutability between private consumption and government purchases," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 593-605, December.
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  21. Zhang, Junxi, 2000. "Public services, increasing returns, and equilibrium dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 227-246, February.
  22. Jang-Ting Guo & Sharon G. Harrison, 2008. "Useful Government Spending and Macroeconomic (In)stability under Balanced-Budget Rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(3), pages 383-397, 06.
  23. Becker, Robert A. & Foias, Ciprian, 1987. "A characterization of Ramsey equilibrium," Journal of Economic Theory, Elsevier, vol. 41(1), pages 173-184, February.
  24. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  25. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 825-853, August.
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