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Journal of Economic Integration 2005 June;20(2) :347-365.
Dynamic Fiscal Policies and Endogenous Growth

Hyun Park Apostolis Philippopoulos 

Kyung-Hee University
Athens University of Economics and Business
Copyright ©2005 Journal of Economic Integration

This paper studies the dynamic properties of an endogenous growth model in which government consumption and production services are financed by capital taxes. I generalize the existence and its stability property of commitment Ramsey equilibria when government spending is productive and taxation is distortionary. I then establish a sufficient condition for uniqueness of the (positive) balanced growth path and determinacy of transitional dynamics. The same sufficient condition ensures growth convergence in Barro-type endogenous fiscal policies. This modeling approach can be used by a large class of endogenous growth models which allow for market imperfections and optimal policies. In particular, a few implications for main results are discussed on economic integration.

JEL Classifications: D90, H21, O38

Keywords: Optimal tax policy | Transitional dynamics | Determinacy | Growth convergence
1. Devereux M. and J-F. Wen [1998]: "Political instability, capital taxation and growth," European Economic Review 42, 1635-1651.
2. Futagami K., Y. Morita and A. Shibata [1993]: "Dynamic analysis of an endogenous growth model with public capital," Scandinavian Journal of Economics 95, 607-625.
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