PUBLIC SPENDING AS A SOURCE OF ENDOGENOUS BUSINESS CYCLES IN A RAMSEY MODEL WITH MANY AGENTS. (23rd April 2014)

• Record Type: Journal Article
• Authors: Nishimura, Kazuo; Nourry, Carine; Seegmuller, Thomas; Venditti, Alain
• Editors: Serletis, Apostolos
• Is Part Of: Macroeconomic dynamics. Volume 20:Number 2(2016:Apr.)
• Page Start: 504
• Page End: 524
• Publication Date: 2014-04-23
• Subjects: Endogenous Cycles, -- Indeterminacy, -- Heterogeneous Agents, -- Public Spending, -- Endogenous Labor Supply, -- Borrowing Constraint; Macroeconomics -- Periodicals; 339.05
• DOI: 10.1017/S1365100514000078
• Languages: English
• ISSNs: 1365-1005

Abstract

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.