Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents

Kazuo Nishimura (1, 2) , Carine Nourry (3) , Thomas Seegmuller (3) , Alain Venditti (4, 3)

1 KIER, Kyoto University
2 RIEB, Kobe University
3 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
4 Edhec Business School - Edhec

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.

Mots clés: Endogenous cycles; indeterminacy; heterogeneous agents; public spending; endogenous labor supply; borrowing constraint

Mots clés: Economie quantitative

Domaines: Sciences de l'Homme et Société; Economies et finances

Kazuo Nishimura, Carine Nourry, Thomas Seegmuller, Alain Venditti. Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many Agents. 2023. ⟨hal-01447873⟩