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PUBLIC SPENDING AS A SOURCE OF ENDOGENOUS BUSINESS CYCLES IN A RAMSEY MODEL WITH MANY AGENTS

Published online by Cambridge University Press:  23 April 2014

Kazuo Nishimura ,
Carine Nourry ,
Thomas Seegmuller  and
Alain Venditti
Kazuo Nishimura*
Affiliation:
Kobe University and Institute of Economic Research, Kyoto University
Carine Nourry
Affiliation:
Aix-Marseille University (Aix-Marseille School of Economics) CNRS-GREQAM EHESS and IUF
Thomas Seegmuller
Affiliation:
Aix-Marseille University (Aix-Marseille School of Economics) CNRS-GREQAM and EHESS
Alain Venditti
Affiliation:
Aix-Marseille University (Aix-Marseille School of Economics) CNRS-GREQAM EHESS and EDHEC
*
Address correspondence to: Kazuo Nishimura, Institute of Economic Research, Kyoto University, Yoshidahonmachi, Sakyoku, Kyoto 606-8501, Japan; e-mail: [email protected].
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Abstract

We introduce public spending, financed through income taxation, into the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital–labor substitution is high enough to be compatible with capital income monotonicity. Moreover, unlike frameworks with a representative agent, our results do not require externalities in production and are compatible with a weakly elastic labor supply with respect to wage.

Keywords

Endogenous CyclesIndeterminacyHeterogeneous AgentsPublic SpendingEndogenous Labor SupplyBorrowing Constraint
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 2: Complexity in Economic Systems , March 2016 , pp. 504 - 524
Copyright
Copyright © Cambridge University Press 2014 

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