Government Size and the Composition of Public Spending in a Neoclassical Growth Model

Oliviero Carboni and Giuseppe Medda

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: This paper develops a non-linear theoretical relationship between public spending and economic growth. The model identifies the "optimal" size of government and the "optimal" composition of government spending. Given the size of the government, different allocations of public resources lead to different growth rates in the transition dynamics, depending on their elasticity. We argue that neglecting the hypothesis of non-linearity and the different impact different kinds of public spending have on economic performance results in models which suffer from mis-specification. Traditional linear regression analysis may thus be biased

Keywords: neoclassical and augmented growth models; fiscal policy; public spending composition (search for similar items in EconPapers)
JEL-codes: E13 E62 H20 H50 O40 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-dev, nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:200701

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