Optimal Government Spending and Taxation in Endgenous Growth Models

40 Pages Posted: 19 Jul 2000 Last revised: 29 Jun 2010

See all articles by Giancarlo Corsetti

Giancarlo Corsetti

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 1996

Abstract

This paper analyzes optimal spending, tax and financial policies in models of endogenous growth where public spending is productive. We extend previous work in four directions. First, we analyze optimal policies when the government is allowed to borrow and lend, rather than being restricted to run a balanced budget in every period. Second, we develop a model with a separate human capital accumulation sector. Therefore, the properties of optimal policies depend on whether government spending affects the productivity of the final goods sector or the human capital accumulation sector. Third, we consider the policy implications of alternative assumptions about which factor of production benefits from the external effects of productive public goods. Fourth, we study the implications of restrictions on the menu of tax instruments available to the policy maker. We contrast optimal tax rates on human and physical capital under different assumptions on technology and distribution. We analyze the welfare properties of public debt and assets.

Suggested Citation

Corsetti, Giancarlo and Roubini, Nouriel, Optimal Government Spending and Taxation in Endgenous Growth Models (December 1996). NBER Working Paper No. w5851. Available at SSRN: https://ssrn.com/abstract=225636

Giancarlo Corsetti (Contact Author)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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Italy

University of Rome III - Department of Economics ( email )

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Italy
+39 06 5737 4056 (Phone)
+39 06 5737 4093 (Fax)

Centre for Economic Policy Research (CEPR)

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United Kingdom

Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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New York, NY 10003
United States
212-998-0886 (Phone)
212-995-4218 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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