This paper analyses the effect of public expenditures in the context of a modified Solow model of capital accumulation with optimising agents. The model identifies optimal government size and optimal composition of public expenditures which maximize the rate of growth in the dynamics to the steady state and maximize the long run level of per capita income. Different allocations of public resources lead to different growth rates in the transitional dynamics depending on their elasticity. However effects from fiscal policy are only temporary and disappear in the steady state. Finally we argue that neglecting the non-linear nature of the relationship between government spending and growth may lead empirical studies to biased results.

A Neoclassical Growth Model with Public Spending / Carboni, Oliviero Antonio; Medda, G.. - In: CONTRIBUTI DI RICERCA CRENOS. - 10/33:(2010).

A Neoclassical Growth Model with Public Spending

CARBONI, Oliviero Antonio;
2010

Abstract

This paper analyses the effect of public expenditures in the context of a modified Solow model of capital accumulation with optimising agents. The model identifies optimal government size and optimal composition of public expenditures which maximize the rate of growth in the dynamics to the steady state and maximize the long run level of per capita income. Different allocations of public resources lead to different growth rates in the transitional dynamics depending on their elasticity. However effects from fiscal policy are only temporary and disappear in the steady state. Finally we argue that neglecting the non-linear nature of the relationship between government spending and growth may lead empirical studies to biased results.
A Neoclassical Growth Model with Public Spending / Carboni, Oliviero Antonio; Medda, G.. - In: CONTRIBUTI DI RICERCA CRENOS. - 10/33:(2010).
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11388/83378
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