Size and composition of public spending in a neoclassical growth model

TitleSize and composition of public spending in a neoclassical growth model
Publication TypeJournal Article
Year of Publication2011
AuthorsCarboni, OA, Medda, G
JournalMetroeconomica
Volume62
Issue1
Pagination150-170
Abstract

This paper analyses the effect of public expenditures in a modified Solow model of capital accumulation with optimizing agents. The model identifies optimal government size and composition of public expenditures which maximize the rate of growth in the dynamics to the steady state and 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 elasticities. However effects from fiscal policy are only temporary. Finally we argue that neglecting the non-linear nature of the relationship between government spending and growth may lead empirical studies to biased results.

URLhttp://onlinelibrary.wiley.com/doi/10.1111/j.1467-999X.2010.04093.x/abstract
DOI10.1111/j.1467-999X.2010.04093.x