This paper analyses the role of the composition of government consumption in a non-scale R&D based model of growth by drawing a distinction between two broad categories of government spending: final goods purchases and public employee compensation. The composition of public expenditure plays a crucial role because changes in the goods and the employment components have different effects on the long run equilibrium of the economy. Unlike an increase in government spending in final goods, an increase in public employment reallocates labour away from the private sector with a negative effect on per capita output, research effort and innovation. In addition, for given level of public expenditure a change in the composition affects the steady-state allocation of resources and influences the economy transitional dynamics by varying the speed of convergence toward the steady state.
The role of government consumption composition in an R&D based growth model
CENSOLO, Roberto;COLOMBO, Caterina
2007
Abstract
This paper analyses the role of the composition of government consumption in a non-scale R&D based model of growth by drawing a distinction between two broad categories of government spending: final goods purchases and public employee compensation. The composition of public expenditure plays a crucial role because changes in the goods and the employment components have different effects on the long run equilibrium of the economy. Unlike an increase in government spending in final goods, an increase in public employment reallocates labour away from the private sector with a negative effect on per capita output, research effort and innovation. In addition, for given level of public expenditure a change in the composition affects the steady-state allocation of resources and influences the economy transitional dynamics by varying the speed of convergence toward the steady state.I documenti in SFERA sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
