A Note on Economic Growth with Subsistence Consumption

Leibniz Universitat Hannover Discussion Paper No. 405

11 Pages Posted: 3 Sep 2008  

Holger Strulik

University of Goettingen (Gottingen) - School of Law, Economics, Social Sciences

Date Written: September 2, 2008

Abstract

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.

Keywords: economic growth, saving, subsistence needs

JEL Classification: O11, O41, D90

Suggested Citation

Strulik, Holger, A Note on Economic Growth with Subsistence Consumption (September 2, 2008). Leibniz Universitat Hannover Discussion Paper No. 405. Available at SSRN: https://ssrn.com/abstract=1262339 or http://dx.doi.org/10.2139/ssrn.1262339

Holger Strulik (Contact Author)

University of Goettingen (Gottingen) - School of Law, Economics, Social Sciences ( email )

Germany

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