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A Neoclassical Growth Model with Public Spending

Oliviero Carboni and Giuseppe Medda ()

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: This paper analyses the effect of public expenditures in the context of a modified Solow model of capital accumulation with optimising agents. The model identifies optimal government size and optimal composition of public expenditures which maximize the rate of growth in the dynamics to the steady state and maximize the long run level of per capita income. Different allocations of public resources lead to different growth rates in the transitional dynamics depending on their elasticity. However effects from fiscal policy are only temporary and disappear in the steady state. Finally we argue that neglecting the non- linear nature of the relationship between government spending and growth may lead empirical studies to biased results.

Keywords: neoclassical and augmented growth models; fiscal policy (search for similar items in EconPapers)
JEL-codes: E13 E62 H20 H50 O40 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-pbe
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https://crenos.unica.it/crenos/node/3076
https://crenos.unica.it/crenos/sites/default/files/WP10-33.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:201033

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