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Government spending composition, aggregate demand, growth, and distribution

Daniele Tavani and Luca Zamparelli ()

Review of Keynesian Economics, 2017, vol. 5, issue 2, 239-258

Abstract: We study a demand-driven growth and distribution model with a public sector, both without and with government debt. Government spending is used to finance the accumulation of public capital and to pay wages to public employees. The interaction between public capital and induced technical change makes long-run growth: (i) hump-shaped in the composition of government spending, (ii) wage-led, and (iii) government-spending-led. Provided that the interest rate on government bonds is kept below the growth rate, the size of government debt is irrelevant for long-run growth.

Keywords: Keynesian growth; government spending composition; factor shares; fiscal policy (search for similar items in EconPapers)
JEL-codes: E12 E25 E62 H50 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Governement Spending Composition, Aggregate Demand, Growth and Distribution (2015) Downloads
Working Paper: Government Spending Composition, Aggregate Demand, Growth and Distribution (2015) Downloads
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