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Government Spending and the Optimal Rates of Consumption and Capital Accumulation

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  • Slobodan Djajic

Abstract

This paper investigates the effects of a temporary change in government expenditures on private consumption and investment. The model employed is one of a closed economy populated by infinitely-lived, utility-maximizing individuals. The analysis focuses on the implications of alternative assumptions concerning the relationship between public and private consumption in the household's utility function. A temporary increase in government expenditure reduces investment if public and private goods are Edgeworth complements or independent. However, if they are substitutes, there is a possibility of an increase in investment.

Suggested Citation

  • Slobodan Djajic, 1987. "Government Spending and the Optimal Rates of Consumption and Capital Accumulation," Working Paper 681, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:681
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    Cited by:

    1. Chang, Wen-ya, 1999. "Government spending, endogenous labor, and capital accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1225-1242, August.
    2. Pasula, Kit, 1997. "Monetary Non-Neutrality and the Intertemporal Approach to the Balance of Trade: The UK Trade Balance under Bretton Woods," Review of International Economics, Wiley Blackwell, vol. 5(3), pages 333-347, August.
    3. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
    4. Shieh, Jhy-yuan & Chen, Jhy-hwa & Lai, Ching-chong, 2006. "Government spending, capital accumulation and the optimal policy rule: The role of public service capital," Economic Modelling, Elsevier, vol. 23(6), pages 875-889, December.
    5. Auteri, Monica & Costantini, Mauro, 2010. "A panel cointegration approach to estimating substitution elasticities in consumption," Economic Modelling, Elsevier, vol. 27(3), pages 782-787, May.
    6. Amit Nandan & Hrushikesh Mallick, 2020. "Does Gender Equality Matter for Regional Growth and Income Inequality? An Empirical Analysis for the Indian States," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(4), pages 439-469, May.
    7. Theodore Palivos & Chong K. Yip, 1996. "Government Purchases and Real Interest Rates with Endogenous Labour Supply," The Economic Record, The Economic Society of Australia, vol. 72(219), pages 332-340, December.
    8. Juan González Alegre, 2012. "An evaluation of EU regional policy. Do structural actions crowd out public spending?," Public Choice, Springer, vol. 151(1), pages 1-21, April.
    9. van Dalen, Hendrik P., 1999. "Intertemporal substitution in public and private consumption -- long-run evidence from the US and the UK," Economic Modelling, Elsevier, vol. 16(3), pages 355-370, August.
    10. Van Dalen, Hendrik P., 1995. "Intertemporal substitution in war and peace: Evidence from the United Kingdom, 1830-1990," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 447-469.

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