A model of the optimal allocation of government expenditures

Simon Fan, Yu Pang and Pierre Pestieau

Journal of Public Economic Theory, 2020, vol. 22, issue 4, 845-876

Abstract: Government expenditures can be used for various socioeconomic objectives, including public education, consumption of public goods and services, and social protection. This paper analyzes the optimal allocation of public expenditures among these competing functions. We establish an overlapping generations model with heterogeneous individuals in which the government optimally chooses income tax, transfer payment, educational spending, and public consumption. Our model characterizes the transitional dynamics and the steady state of each function with and without a pay‐as‐you‐go intergenerational contract. We also conduct a simulation illustrating that the presence of an intergenerational contract may raise public consumption and social welfare in the steady state.

Date: 2020
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Citations: View citations in EconPapers (9)

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https://doi.org/10.1111/jpet.12416

Related works:
Working Paper: A model of the optimal allocation of government expenditures (2019)
Working Paper: A model of the optimal allocation of government expenditures (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:22:y:2020:i:4:p:845-876

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