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A Model of Economic Growth with Public Finance: Dynamics and Analytic Solution

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  • OA Carboni
  • P. Russu

Abstract

This paper studies the equilibrium dynamics of a growth model with public finance where two different allocations of public resources are considered. The model simultaneously determines the optimal shares of consumption, capital accumulation, taxes and composition of the two different public expenditures which maximize a representative household s lifetime utilities in a centralized economy. The analysis supplies a closed form solution. Moreover, with one restriction on the parameters (α=σ) we fully determine the solutions path for all variables of the model and determine the conditions for balanced growth.

Suggested Citation

  • OA Carboni & P. Russu, 2012. "A Model of Economic Growth with Public Finance: Dynamics and Analytic Solution," Working Paper CRENoS 201229, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:201229
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    Cited by:

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    More about this item

    Keywords

    growth models; fiscal policy; public spending composition;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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