A NOTE ON ECONOMIC GROWTH WITH SUBSISTENCE CONSUMPTION

Holger Strulik

Macroeconomic Dynamics, 2010, vol. 14, issue 5, 763-771

Abstract: It is well known that the performance of simple models of economic growth improves substantially through the introduction of subsistence consumption. How to compute subsistence needs, however, is a difficult and controversial issue. Here, I reconsider the linear (Ak) growth model with subsistence consumption and show that the evolution of savings rates and economic growth rates over time is independent of the size of subsistence needs. The model is thus more general and less subject to arbitrariness than might have been thought initially. Quantitatively, it is shown that, although there is no degree of freedom to manipulate transitional dynamics, the model approximates the historical evolution of savings rates and growth rates reasonably well.

Date: 2010
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Working Paper: A Note on Economic Growth with Subsistence Consumption (2008)
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