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Title: Endogenous time preference and public policy: Growth and fiscal implications
Authors: Dioikitopoulos, EV
Kalyvitis, S
Keywords: Endogenous time preference;Public capital externalities;Growth-maximizing fiscal policies
Issue Date: 2010
Publisher: Cambridge University Press
Citation: Macroeconomic Dynamics, 14(S2), 243 - 257, 2010
Abstract: This paper studies the growth and fiscal policy implications of the assumption that public policy generates an externality in the individual rate of time preference through the aggregate public capital stock. We examine the competitive equilibrium properties and we solve for endogenous growth–maximizing fiscal policy. We investigate the behavior of the government size and the growth rate to the sensitivity of time preference to public capital and the magnitude of public capital externality on production. We find that the Barro taxation rule [Barro, Robert J., Journal of Political Economy 98 (1990), 103–125], which states that the elasticity of public capital in the production function should equal the government size, is suboptimal. We show that the government does not necessarily have to increase income taxation following a rise in public capital intensity because of the externality of public capital on time preference and, in turn, on growth and the tax base of the economy.
Description: Copyright @ 2010 Cambridge University Press. This is the author's accepted manuscript. The final published article is available from the link below.
This article has been made available through the Brunel Open Access Publishing Fund.
ISSN: 1365-1005
Appears in Collections:Economics and Finance
Brunel OA Publishing Fund
Dept of Economics and Finance Research Papers

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