Government Expenditure and Long-Run Stochastic Growth

Christiane Clemens

No 133, Computing in Economics and Finance 2001 from Society for Computational Economics

Abstract: This paper employs a stochastic endogenous growth model with productive government expenditure to analyze the macroeconomic effects of income taxation. We demonstrate that in the presence of capital and income risk the impact of taxation on consumption choice as well as on economic growth is ambiguous as it affects the mean as well as the variance of disposable income. We observe that the effects of taxation crucially depend on the degree of risk aversion and on the capital income share. It is possible to solve for welfare maximizing policies, but contrary to the deterministic framework, welfare and growth maximizing policies do not necessarily coincide and multiple solutions for optimal tax rates can be found.

Keywords: Stochastic Growth; Precautionary Savings; Government Expenditure (search for similar items in EconPapers)
JEL-codes: D8 D9 E6 (search for similar items in EconPapers)
Date: 2001-04-01
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf1:133

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