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Public Spending in an OLG Economy with Endogenous Technological Change - Financing Matters -

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  • Amer TABAKOVIĆ

    ()

Abstract

This paper introduces a government in an overlapping generations economy where long-run growth is the result of purposeful investments in a research sector that creates new technological knowledge. The government provides a subsidy to the re- search sector and pays for its spending by raising taxes and/or issuing debt. A debt- financed research subsidy cannot lead to a higher long-run growth rate than the one obtained in a competitive equilibrium of an otherwise equivalent economy without government. Instead, we show that paying for the subsidy entirely by raising taxes is advantageous from a long-run growth perspective. However, our analysis indicates that neither financing scenario is Pareto-improving as the initially old generation always suffers a welfare loss.

Suggested Citation

  • Amer TABAKOVIĆ, 2019. "Public Spending in an OLG Economy with Endogenous Technological Change - Financing Matters -," Departmental Working Papers 2019-08, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2019-08
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    File URL: http://wp.demm.unimi.it/files/wp/2019/DEMM-2019_08wp.pdf
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    More about this item

    Keywords

    Productive public spending; Debt issuance; Endogenous technical change; Long-run growth;

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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