Government Spending Composition in a Simple Model of Schumpeterian Growth

Simon Wiederhold ()

No 2009-101, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: This paper investigates the relevance of government purchasing behavior for innovation-based economic growth. We construct a parsimonious Schumpeterian growth model in which demand from the public sphere can effectively alter the economy's rate of technological change. We incorporate results of various empirical studies arguing that public sector demand acts as incentive for private innovation activities. In contrast to the standard Schumpeterian growth framework, we account for industry heterogeneity in terms of innovation potential. This extension allows to bring government demand policy within the realm of the growth policy debate. By varying the composition of its purchases, the government can induce a reallocation of private resources to stimulate the rate of technological change. This comes along with temporarily faster economic growth. Moreover, our welfare analysis implies that it is always worth implementing a policy in which industries benefit from public purchases subject to their specific innovation size.

Keywords: public demand; endogenous technological change; Schumpeterian growth (search for similar items in EconPapers)
JEL-codes: E62 H54 H57 O31 O32 O41 (search for similar items in EconPapers)
Date: 2009-12-09
New Economics Papers: this item is included in nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2009-101

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