EconPapers    
Economics at your fingertips  
 

Productive public expenditures, expectation formations and nonlinear dynamics

Hung-Ju Chen and Ming-Chia Li

Mathematical Social Sciences, 2008, vol. 56, issue 1, 109-126

Abstract: In this paper, we investigate the dynamic properties of an overlapping generations' model with capital accumulation and publicly funded inventions under three different expectations: perfect foresight, myopic expectations and adaptive expectations. We show that considering productive public expenditures in the model will increase the dimension of the dynamical system. To study the dynamic behavior of a high-dimensional dynamical system, we focus on the case when the elasticity of publicly funded invention to output is small and approximate the system by using a one-dimensional dynamical system. This approximation method provides an efficient way to rigorously prove the existence of chaos in high-dimensional dynamical systems. We show that when agents are perfectly foresighted, there exists a unique, nontrivial steady state which is a global attractor. Cycles or even chaos may occur under myopic and adaptive expectations when the inter-temporal elasticity of substitution of consumption is large enough. Furthermore, we find that the impact of fiscal policy is sensible to the expectation formation.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165-4896(07)00121-7
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:56:y:2008:i:1:p:109-126

Access Statistics for this article

Mathematical Social Sciences is currently edited by J.-F. Laslier

More articles in Mathematical Social Sciences from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-10-02
Handle: RePEc:eee:matsoc:v:56:y:2008:i:1:p:109-126