Fiscal policy and growth with complementarities and constraints on government
Norman Gemmell () and
Richard Kneller ()
No 11-018, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research
This paper considers the implications of complementarity in private production and constraints on government for optimal fiscal policy. Using an endogenous growth model with public finance, it derives three central results which modify findings in the literature under standard assumptions. First, it shows that optimal public spending composition and taxation are interrelated so that first- and second-best fiscal policies differ. Second, it shows that the growth-maximizing fiscal policy is affected by preference parameters. Third, it shows that with budget rigidities and informational limitations, knowledge about the optimal fiscal policy parameter values is not necessary for growth-enhancing fiscal policy adjustments.
Keywords: Imperfect Knowledge; Economic Growth; Productive Public Spending; Optimal Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E62 H21 H50 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:11018
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