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PUBLIC SPENDING AS A SOURCE OF ENDOGENOUS BUSINESS CYCLES IN A RAMSEY MODEL WITH MANY AGENTS

Kazuo Nishimura (), Carine Nourry, Thomas Seegmuller () and Alain Venditti ()

Macroeconomic Dynamics, 2016, vol. 20, issue 2, 504-524

Abstract: We introduce public spending, financed through income taxation, into the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital–labor substitution is high enough to be compatible with capital income monotonicity. Moreover, unlike frameworks with a representative agent, our results do not require externalities in production and are compatible with a weakly elastic labor supply with respect to wage.

Date: 2016
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Related works:
Working Paper: Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents (2016)
Working Paper: Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents (2013) Downloads
Working Paper: Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents (2013) Downloads
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