We are grateful to Luca Deidda, Valentino Benedetti and Paolo Russu for valuable suggestions on earlier drafts. We are indebted to two anonymous referees for helpful comments and suggestions that greatly improved the quality of the paper. We also thank Fondazione Banco di Sardegna for financial support and the Faculty of Economics E. Mondlane of Maputo (Mozambique) where this work has been partly conceived. All errors are, of course, the responsibility of the authors alone.
SIZE AND COMPOSITION OF PUBLIC SPENDING IN A NEOCLASSICAL GROWTH MODEL
Article first published online: 3 MAY 2010
© 2010 Blackwell Publishing Ltd
Volume 62, Issue 1, pages 150–170, February 2011
How to Cite
Carboni, O. A. and Medda, G. (2011), SIZE AND COMPOSITION OF PUBLIC SPENDING IN A NEOCLASSICAL GROWTH MODEL. Metroeconomica, 62: 150–170. doi: 10.1111/j.1467-999X.2010.04093.x
- Issue published online: 3 MAY 2010
- Article first published online: 3 MAY 2010
- (December 2007; revised February 2010)
This paper analyses the effect of public expenditures in a modified Solow model of capital accumulation with optimizing agents. The model identifies optimal government size and composition of public expenditures which maximize the rate of growth in the dynamics to the steady state and the long-run level of per capita income. Different allocations of public resources lead to different growth rates in the transitional dynamics depending on their elasticities. However effects from fiscal policy are only temporary. Finally we argue that neglecting the non-linear nature of the relationship between government spending and growth may lead empirical studies to biased results.