The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth

David Greasley, Nick Hanley, Eoin McLaughlin and Les Oxley

No 2015-01, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: Modern macroeconomic theory utilises optimal control techniques to model the maximisation of individual well-being using a lifetime utility function. Agents face choices over current and future consumption (with resultant implied savings decisions) seeking to maximise the present value of current plus future well-being. However, such inter-temporal welfare-maximising assumptions remain empirically untested. In the work presented here we test whether welfare was in (historical) fact maximised in the US between 1870-2000 and find empirical support for the optimising basis of growth theory, but only once a comprehensive view of what constitutes a country's wealth or capital is taken into account.

Keywords: inter-temporal utility maximisation; modern growth theory; US; comprehensive wealth (search for similar items in EconPapers)
Date: 2014-08
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Related works:
Working Paper: The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth (2014)
Working Paper: The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:589

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