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Can Poductive Government Spending be the Engine of Long-Run Growth When Labor Supply is Engogenous?

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  • Hyun Park
  • Apostolis Philippopoulos

Abstract

We reexamine the properties of optimal fiscal policy and their implications for implementable capital accumulation. The setup is a standard endogenous growth model with public production services, augmented by elastic labor supply. We show that, when a benevolent government chooses a distorting income tax rate to finance public production services by taking into account the competitive decentralized equilibrium, public production services can no longer play their traditional role as an engine of long-run endogenous growth. This follows from a simple combination of Ramsey second-best fiscal policy and endogenous labor/leisure choices.

Suggested Citation

  • Hyun Park & Apostolis Philippopoulos, 2002. "Can Poductive Government Spending be the Engine of Long-Run Growth When Labor Supply is Engogenous?," CESifo Working Paper Series 686, CESifo.
    • Handle: RePEc:ces:ceswps:_686
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    References listed on IDEAS

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    1. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March.
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    Cited by:

    1. Lukach, R. & Plasmans, J.E.J., 2002. "Measuring Knowledge Spillovers using Patent Citations : Evidence from the Belgian Firm's Data," Other publications TiSEM d78bf59a-e0ff-4451-86b9-1, Tilburg University, School of Economics and Management.

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