Government Purchases and Real Interest Rates with Endogenous Labour Supply
Theodore Palivos and
The Economic Record, 1996, vol. 72, issue 219, 332-40
Within the one-sector optimal growth framework with public services and labour-leisure choice, the authors find that the edicts of temporary productive government spending on the real interest rate depend on the discrepancy between actual and optimal government sizes as well as on the length of the action lag. This paper thus sheds light on the controversy between the empirical findings and the theoretical predictions regarding the behavior of the real interest rate within the neoclassical framework. Copyright 1996 by The Economic Society of Australia.
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