SIZE AND COMPOSITION OF PUBLIC SPENDING IN A NEOCLASSICAL GROWTH MODEL

Authors

  • Oliviero A. Carboni,

    Corresponding author
    1. University of Sassari &
      Oliviero A. Carboni
      University of Sassari & CRENoS
      Department of Economics
      Department of DEIR
      Via Torre Tonda, 34, 07100 Sassari
      Italy
      E-mail: ocarboni@uniss.it
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  • Giuseppe Medda

    Corresponding author
    1. CRENoS and University of Sassari
      Giuseppe Medda
      University of Sassari
      Faculty of Economics
      Department of Economics (D.E.I.R.)
      Via Torre Tonda, 34, 07100 Sassari
      Italy
      E-mail: gmedda@yahoo.it
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    • 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.


Oliviero A. Carboni
University of Sassari & CRENoS
Department of Economics
Department of DEIR
Via Torre Tonda, 34, 07100 Sassari
Italy
E-mail: ocarboni@uniss.it

Giuseppe Medda
University of Sassari
Faculty of Economics
Department of Economics (D.E.I.R.)
Via Torre Tonda, 34, 07100 Sassari
Italy
E-mail: gmedda@yahoo.it

ABSTRACT

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.

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