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The Macroeconomics of TANSTAAFL

Volker Grossmann (), Thomas Steger () and Timo Trimborn ()

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: Market imperfections may lead to underinvestment in dynamic general equilibrium models. An interesting but unexplored question is whether policy interventions which attenuate underinvestment gaps necessarily imply that consumption will initially decline. By employing a calibrated version of a standard R&D-based growth model, we show that raising the R&D subsidy rate may not only close the R&D underinvestment gap but also raise consumption per capita at all times ("intertemporal free lunch"). Hence, Milton Friedman’s conjecture 'There ain’t no such thing as a free lunch' (TANSTAAFL) may not apply. We also discuss the mechanics of an intertemporal free lunch and further examples.

Keywords: Intertemporal free lunch; Endogenous growth; R&D underinvestment; Transitional dynamics (search for similar items in EconPapers)
Date: 2012-09
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Related works:
Journal Article: The macroeconomics of TANSTAAFL (2013) Downloads
Working Paper: The Macroeconomics of TANSTAAFL (2011) Downloads
Working Paper: The Macroeconomics of TANSTAAFL (2011) Downloads
Working Paper: The macroeconomics of TANSTAAFL (2011) Downloads
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