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Government finance and endogenous growth

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  • Michel Strawczynski
  • Momi Dahan

Abstract

A crucial assumption for the solution of the endogenous growth model with government intervention is a balanced budget along the perpetual steady state. This assumption is unreal once we are interested to test the model using government data, given that in most countries the budget is not balanced. In this letter we adopt the well-known rule of 'tax smoothing' in order to make this assumption a realistic one. According to our approach the relevant variable for the implementation of a balanced budget is permanent government expenses. The empirical performance of the model is characterized using Israeli data.

Suggested Citation

  • Michel Strawczynski & Momi Dahan, 1996. "Government finance and endogenous growth," Applied Economics Letters, Taylor & Francis Journals, vol. 3(12), pages 789-791.
    • Handle: RePEc:taf:apeclt:v:3:y:1996:i:12:p:789-791
    DOI: 10.1080/135048596355600
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    References listed on IDEAS

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    1. Barro, Robert J, 1981. "Output Effects of Government Purchases," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1086-1121, December.
    2. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    4. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    5. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu Zou, 1993. "What do governments buy? The composition of public spending and economic performance," Policy Research Working Paper Series 1082, The World Bank.
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    Cited by:

    1. Ben Fine, 1998. "Endogenous Growth Theory: A Critical Assessment," Working Papers 80, Department of Economics, SOAS University of London, UK.

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