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Dynamic Aspect of Growth and Fiscal Policy

Author Info

  • Thomas Krichel

    ()

  • Paul Levine

    ()

    (University of Surrey)

Abstract

We develop an endogenous growth model driven by externalities of both private capital and public infrastructure. The government levies distortionary taxation to finance a publicly provided consumption good and public infrastructure. Firms face adjustment costs. We first study the steady state, focusing in detail on the non-Ricardian aspects of the model. We then examine the optimal and time-consistent policies in a linear-quadratic approximation of the model. Although the time consistent equilibrium is also sub-optimal in terms of steady-state welfare, it does yield higher growth, through an accumulation of assets by the state and a cut of government consumption.

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File URL: http://www.fahs.surrey.ac.uk/economics/discussion_papers/archive/surrec9601.pdf
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Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 9601.

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Date of creation: Mar 1996
Date of revision: Nov 1997
Handle: RePEc:sur:surrec:9601
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Keywords: endogenous growth; fiscal policy; time inconsistency.;

Find related papers by JEL classification:

  • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  1. Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1243-1259.
  2. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
  3. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  4. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
  5. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
  6. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  7. Devereux, Michael B & Love, David R F, 1995. "The Dynamic Effects of Government Spending Policies in a Two-Sector Endogenous Growth Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 232-56, February.
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