Productive government expenditure and economic growth in a heterogeneous-agents model

Ryo Arawatari (), Takeo Hori () and Kazuo Mino
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Ryo Arawatari: Graduate School of Economics, Doshisha University
Takeo Hori: Department of Industrial Engineering and Economics, School of Engineering Tokyo Institute of Technology

No 1044, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper examines the relationship between productive government expenditure and economic growth. An R&D-based model of endogenous growth is used in which agents have heterogeneous entrepreneurial abilities. We show that if the entrepreneurial ability follows a long- and fat-tailed distribution, then the relationship between government ex-penditure/ GDP and economic growth rate is depicted by an inverted U-shaped curve with a flat top. The flat top indicates that government size change has a limited impact on growth. We calibrate the model to U.S. data and empirically confirm the above theoretical prediction.

Keywords: endogenous growth; government expenditure; heterogeneous agents; nonlinear relationship (search for similar items in EconPapers)
JEL-codes: E62 O40 (search for similar items in EconPapers)
Pages: 54pages
Date: 2020-10
New Economics Papers: this item is included in nep-dge, nep-gro, nep-mac and nep-ore
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