Factor substitution is an engine of growth in a model with productive public expenditure

Manuel Gómez

Journal of Economics, 2016, vol. 117, issue 1, 37-48

Abstract: This paper examines the effect of the elasticity of substitution between public and private inputs on the optimal fiscal policy, long-run growth and welfare. To this end, we consider an endogenous growth model with productive public spending. If the baseline government size is suboptimally low (high), the higher the elasticity of substitution the higher (lower) are the optimal government size and, in the presence of congestion, the optimal income tax. In any case, the higher the elasticity of substitution the higher are the optimal long-run growth rate and welfare. Copyright Springer-Verlag Wien 2016

Keywords: Elasticity of substitution; Productive public spending; Endogenous growth; Welfare; H21; O41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:117:y:2016:i:1:p:37-48

DOI: 10.1007/s00712-015-0442-8

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