Dynamic effects of government expenditure in a finance constrained economy: A Note
Gokan [Dynamic effects of government expenditure in a finance constrained economy, J. Econ. Theory 127 (2006) 323-333] introduces constant government expenditure (financed by labor income taxes) in Woodford's model with capital-labor substitution and investigates how local dynamics near two steady states depend upon the elasticity of substitution between capital and labor. In this paper, we show that the local dynamics will change dramatically if the government transfers its revenue to the households (workers) in a lump sum way. In particular, we question the result that the rate of money growth has no impact on the model dynamics. In a numerical example, we illustrate that the result previously obtained is not robust to the alternative assumption.
|Date of creation:||09 May 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Michel Grandmont & P, A, Pintus & R, De Vilder, 1997.
"Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles,"
97-28, Centre de Recherche en Economie et Statistique.
- Grandmont, Jean-Michel & Pintus, Patrick & de Vilder, Robin, 1998. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Journal of Economic Theory, Elsevier, vol. 80(1), pages 14-59, May.
- GRANDMONT, Jean-Michel & PINTUS, Patrick & de VILDER, Robin, 1997. "Capital-labor substitution and competitive nonlinear endogenous business cycles," CORE Discussion Papers 1997087, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Schmitt-Grohe, Stephanie & Uribe, Martin, 1997.
"Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability,"
Journal of Political Economy,
University of Chicago Press, vol. 105(5), pages 976-1000, October.
- Stephanie Schmitt-Grohe & Martin Uribe, 1995. "Balanced-budget rules, distortionary taxes, and aggregate instability," Finance and Economics Discussion Series 95-44, Board of Governors of the Federal Reserve System (U.S.).
- Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
- Gokan, Yoichi, 2006. "Dynamic effects of government expenditure in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 127(1), pages 323-333, March.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:15138. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.