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The macroeconomics of TANSTAAFL

Volker Grossmann (), Thomas Steger () and Timo Trimborn ()

Journal of Macroeconomics, 2013, vol. 38, issue PA, 76-85

Abstract: Market imperfections may lead to underinvestment in dynamic general equilibrium models. An interesting but unexplored question is whether policy interventions which attenuate underinvestment gaps necessarily imply that consumption will initially decline. By employing a calibrated version of a standard R&D-based growth model, we show that raising the R&D subsidy rate may not only close the R&D underinvestment gap but also raise consumption per capita at all times (“intertemporal free lunch”). We also discuss the general mechanics of such an intertemporal free lunch in both one-sector and multi-sector growth models and further examples.

Keywords: Intertemporal free lunch; Endogenous growth; R&D underinvestment; Transitional dynamics (search for similar items in EconPapers)
JEL-codes: O41 E20 H20 (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: The Macroeconomics of TANSTAAFL (2012) Downloads
Working Paper: The Macroeconomics of TANSTAAFL (2011) Downloads
Working Paper: The Macroeconomics of TANSTAAFL (2011) Downloads
Working Paper: The macroeconomics of TANSTAAFL (2011) Downloads
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