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Abstract

Gokan Dynamic effects of government expenditure in a finance constrained economy, J. Econ. Theory 127 2006 323-333 introduces constant government expenditure financed by labor income taxes in Woodford-s model with capital-labor substitution and investigates how local dynamics near two steady states depend upon the elasticity of substitution between capital and labor. In this paper, we show that the local dynamics will change dramatically if the government transfers its revenue to the households workers in a lump sum way. In particular, we question the result that the rate of money growth has no impact on the model dynamics. In a numerical example, we illustrate that the result previously obtained is not robust to the alternative assumption.



Item Type: MPRA Paper -

Original Title: Dynamic effects of government expenditure in a finance constrained economy: A Note-

Language: English-

Keywords: a lump sum transfer; indeterminacy.-

Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; CyclesC - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium-





Author: Chen, Yan

Source: https://mpra.ub.uni-muenchen.de/15138/







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