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Productive government expenditure and economic growth in a heterogeneous-agents model

Author

Listed:
  • Ryo Arawatari

    (Graduate School of Economics, Doshisha University)

  • Takeo Hori

    (Department of Industrial Engineering and Economics, School of Engineering Tokyo Institute of Technology)

  • Kazuo Mino

    (Institute of Economic Research, Kyoto University)

Abstract

This paper examines the relationship between productive government expenditure and economic growth. An R&D-based model of endogenous growth is used in which agents have heterogeneous entrepreneurial abilities. We show that if the entrepreneurial ability follows a long- and fat-tailed distribution, then the relationship between government ex-penditure/ GDP and economic growth rate is depicted by an inverted U-shaped curve with a flat top. The flat top indicates that government size change has a limited impact on growth. We calibrate the model to U.S. data and empirically confirm the above theoretical prediction.

Suggested Citation

  • Ryo Arawatari & Takeo Hori & Kazuo Mino, 2020. "Productive government expenditure and economic growth in a heterogeneous-agents model," KIER Working Papers 1044, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:1044
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    More about this item

    Keywords

    endogenous growth; government expenditure; heterogeneous agents; nonlinear relationship;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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