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Government Expenditure and Long-Run Stochastic Growth

Author

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  • Christiane Clemens

Abstract

This paper employs a stochastic endogenous growth model with productive government expenditure to analyze the macroeconomic effects of income taxation. We demonstrate that in the presence of capital and income risk the impact of taxation on consumption choice as well as on economic growth is ambiguous as it affects the mean as well as the variance of disposable income. We observe that the effects of taxation crucially depend on the degree of risk aversion and on the capital income share. It is possible to solve for welfare maximizing policies, but contrary to the deterministic framework, welfare and growth maximizing policies do not necessarily coincide and multiple solutions for optimal tax rates can be found.

Suggested Citation

  • Christiane Clemens, 2001. "Government Expenditure and Long-Run Stochastic Growth," Computing in Economics and Finance 2001 133, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:133
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    Citations

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    Cited by:

    1. Chandril Bhattacharyya, 2016. "A note on endogenous growth with public capital," Economics Bulletin, AccessEcon, vol. 36(4), pages 2506-2518.
    2. Chandril Bhattacharyya & Manash Ranjan Gupta, 2015. "Unionized Labour Market, Unemployment Allowances, Productive Public Expenditure And Endogenous Growth," Metroeconomica, Wiley Blackwell, vol. 66(3), pages 397-425, July.
    3. Clemens, Christiane, 2004. "Growth and Labor Income Risk with Inelastic and Elastic Labor Supply," Hannover Economic Papers (HEP) dp-305, Leibniz Universit├Ąt Hannover, Wirtschaftswissenschaftliche Fakult├Ąt.

    More about this item

    Keywords

    Stochastic Growth; Precautionary Savings; Government Expenditure;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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