Government Spending and the Optimal Rates of Consumption and Capital Accumulation
This paper investigates the effects of a temporary change in government expenditures on private consumption and investment. The model employed is one of a closed economy populated by infinitely-lived, utility-maximizing individuals. The analysis focuses on the implications of alternative assumptions concerning the relationship between public and private consumption in the household's utility function. A temporary increase in government expenditure reduces investment if public and private goods are Edgeworth complements or independent. However, if they are substitutes, there is a possibility of an increase in investment.
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|Date of creation:||1987|
|Date of revision:|
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