Size and Composition of Public Spending in a Neoclassical Growth Model

21 Pages Posted: 12 Jan 2011

See all articles by Oliviero Antonio Carboni

Oliviero Antonio Carboni

Università degli Studi di Sassari - Department of Economics and Business

Giuseppe Medda

University of Sassari

Date Written: January 10, 2011

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.

Suggested Citation

Carboni, Oliviero Antonio and Medda, Giuseppe, Size and Composition of Public Spending in a Neoclassical Growth Model (January 10, 2011). Metroeconomica, Vol. 62, Issue 1, pp. 150-170, 2011. Available at SSRN: https://ssrn.com/abstract=1738143 or http://dx.doi.org/10.1111/j.1467-999X.2010.04093.x

Oliviero Antonio Carboni (Contact Author)

Università degli Studi di Sassari - Department of Economics and Business ( email )

via Muroni 25
Sassari, Sassari 07100
Italy

Giuseppe Medda

University of Sassari ( email )

via Muroni 25
Sassari, Sassari 07100
Italy

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