 Public investment, the rate of return, and optimal fiscal policy in a stochastically growing economyJournal of Macroeconomics, 2016, vol. 49, issue C, 1-17 Abstract: This study examines the optimal fiscal policy in a stochastic endogenous growth model with private and public capital. The government is willing to actualize a socially optimal equilibrium using a lump-sum tax and government debt linked to public investments, subject to the budget constraint under the golden rule of public finance. A socially optimal fiscal policy states that a deterministic rate of return on government bonds sets the marginal product of public capital. Moreover, public investments optimally adjust the ratio of private capital to public capital to equate the rates of return on such capital. The presence of stochastic disturbances results in a disparity between the optimal marginal products of the two types of capital, as reported in previous empirical studies. This disparity significantly affects the socially optimal growth rate in response to investment risk. Keywords: Public capital; Optimal fiscal policy; Economic growth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:49:y:2016:i:c:p:1-17 DOI: 10.1016/j.jmacro.2016.04.006 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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