Public Spending and Economic Growth

Renato Balducci ()
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Renato Balducci: Universita' Politecnica delle Marche, Dipartimento di Economia

No 183, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: My intention in this brief essay is to verify whether the results obtained by Barro (1990) and by Alesina and Rodrick (1994) in relation to the influence of public investments on the economy’s rate of growth are also confirmed when a share of public spending is allocated to public consumption in the economy’s utility function. Introducing a positive externality on private consumption into the intertemporal optimization problem seemingly generates less unequivocal results about the role of public spending policies. The latter no longer exert an effect on the growth of the economy solely through the positive externality in production induced by public investments; they also operate through a further channel which consists of consumption decisions and is therefore influenced both by the degree of substitutability between public and private consumption, and by the impatience to consume of households.

Pages: 32
Date: 2003-05
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