The macroeconomics of TANSTAAFL
Volker Grossmann (),
Thomas Steger () and
Timo Trimborn ()
No 101, Working Papers from University of Leipzig, Faculty of Economics and Management Science
This paper shows that dynamic inefficiency can occur in dynamic general equilibrium models with fully optimizing, infinitely-lived households even in a situation with underinvestment. We identify necessary conditions for such a possibility and illustrate it in a standard R&D-based growth model. Calibrating the model to the US, we show that a moderate increase in the R&D subsidy indeed leads to an intertemporal free lunch (i.e., an increase in per capita consumption at all times). Hence, Milton Friedman's conjecture There ain't no such thing as a free lunch (TANSTAAFL) may not apply.
Keywords: intertemporal free lunch; dynamic inefficiency; R&D-based growth; transitional dynamics (search for similar items in EconPapers)
JEL-codes: E20 H20 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
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Journal Article: The macroeconomics of TANSTAAFL (2013)
Working Paper: The Macroeconomics of TANSTAAFL (2012)
Working Paper: The Macroeconomics of TANSTAAFL (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:leiwps:101
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