Government spending, interest rates, and capital accumulation in a two-sector model

Yoshiyasu Ono and Akihisa Shibata

Canadian Journal of Economics, 2001, vol. 34, issue 4, 903-920

Abstract: This paper investigates dynamic impacts of a temporary fiscal expansion in a two-sector growth model. If the expansion falls on consumption-investment commodities, capital accumulation can be either promoted or reduced and the short-term interest rate unambiguously rises. If the expansion falls on consumption commodities, capital accumulation is crowded out and the short-term interest rate declines during the period of the fiscal expansion. It is also shown that fiscal spending on the consumption commodity can move the short- and long-term interest rates in opposite directions.

JEL-codes: E43 E62 O41 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (2)

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