We study a demand-driven growth and distribution model with a public sector, both without and with government debt. Government spending is used to finance the accumulation of public capital and to pay wages to public employees. The interaction between public capital and induced technical change makes long-run growth: (i) hump-shaped in the composition of government spending, (ii) wage-led, and (iii) government spending-led. Provided that the interest rate on government bonds is kept sufficiently below the growth rate, the size of government debt is irrelevant for long-run growth.
Government spending composition, aggregate demand, growth, and distribution / Tavani, Daniele; Zamparelli, Luca. - In: REVIEW OF KEYNESIAN ECONOMICS. - ISSN 2049-5323. - ELETTRONICO. - 5:2(2017), pp. 239-258. [10.4337/roke.2017.02.06]
Government spending composition, aggregate demand, growth, and distribution
TAVANI, Daniele;ZAMPARELLI, LUCA
2017
Abstract
We study a demand-driven growth and distribution model with a public sector, both without and with government debt. Government spending is used to finance the accumulation of public capital and to pay wages to public employees. The interaction between public capital and induced technical change makes long-run growth: (i) hump-shaped in the composition of government spending, (ii) wage-led, and (iii) government spending-led. Provided that the interest rate on government bonds is kept sufficiently below the growth rate, the size of government debt is irrelevant for long-run growth.File | Dimensione | Formato | |
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