A Note on Economic Growth with Subsistence Consumption
University of Goettingen (Gottingen) - School of Law, Economics, Social Sciences
September 2, 2008
Leibniz Universitat Hannover Discussion Paper No. 405
It is well known that the performance of simple models of economic growth improves substantially through the introduction of subsistence consumption. How to compute subsistence needs, however, is a difficult and controversially discussed issue. Here, I reconsider the linear (Ak) growth model with subsistence consumption and show that the evolution of savings rates and economic growth rates over time is independent from the size of subsistence needs. The model is thus more general and less subject to arbitrariness than it might have been thought initially. Quantitatively, it is shown that, although there is no degree of freedom to manipulate transitional dynamics, the model approximates the historical evolution of savings rates and growth rates reasonably well.
Number of Pages in PDF File: 11
Keywords: economic growth, saving, subsistence needs
JEL Classification: O11, O41, D90
Date posted: September 3, 2008
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