Public Spending in a Model of Endogenous Growth with Habit Formation
This paper introduces habit-forming preferences in a Barro-type endogenous growth model with productive public services. Government expenditure, which may be subject to congestion, is financed by distortionary income taxation. Different from the standard time-separable model, the presence of habits...
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| Format: | Article |
| Language: | English |
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Wiley
2010-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2010/514329 |
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| _version_ | 1832549109121155072 |
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| author | Manuel A. Gómez |
| author_facet | Manuel A. Gómez |
| author_sort | Manuel A. Gómez |
| collection | DOAJ |
| description | This paper introduces habit-forming preferences in a Barro-type endogenous growth model with productive public services. Government
expenditure, which may be subject to congestion, is financed by distortionary income taxation. Different from the standard time-separable model,
the presence of habits makes the economy feature transitional dynamics, which are solved in closed form. Setting the income tax so as to equate
the elasticity of public services in production is shown to maximize both long-run growth and welfare as in the standard model. This second-best solution coincides with the first-best outcome only in the presence of proportional congestion. |
| format | Article |
| id | doaj-art-7a66190091f64187b6f912eaa2e62721 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2010-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-7a66190091f64187b6f912eaa2e627212025-02-03T06:12:07ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2010-01-01201010.1155/2010/514329514329Public Spending in a Model of Endogenous Growth with Habit FormationManuel A. Gómez0Department of Applied Economics II, University of A Coruña, Campus de Elviña, 15071 A Coruña, SpainThis paper introduces habit-forming preferences in a Barro-type endogenous growth model with productive public services. Government expenditure, which may be subject to congestion, is financed by distortionary income taxation. Different from the standard time-separable model, the presence of habits makes the economy feature transitional dynamics, which are solved in closed form. Setting the income tax so as to equate the elasticity of public services in production is shown to maximize both long-run growth and welfare as in the standard model. This second-best solution coincides with the first-best outcome only in the presence of proportional congestion.http://dx.doi.org/10.1155/2010/514329 |
| spellingShingle | Manuel A. Gómez Public Spending in a Model of Endogenous Growth with Habit Formation Discrete Dynamics in Nature and Society |
| title | Public Spending in a Model of Endogenous Growth with Habit Formation |
| title_full | Public Spending in a Model of Endogenous Growth with Habit Formation |
| title_fullStr | Public Spending in a Model of Endogenous Growth with Habit Formation |
| title_full_unstemmed | Public Spending in a Model of Endogenous Growth with Habit Formation |
| title_short | Public Spending in a Model of Endogenous Growth with Habit Formation |
| title_sort | public spending in a model of endogenous growth with habit formation |
| url | http://dx.doi.org/10.1155/2010/514329 |
| work_keys_str_mv | AT manuelagomez publicspendinginamodelofendogenousgrowthwithhabitformation |