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

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

1 Institute of Economic Research, Kyoto University
2 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
3 IUF - Institut universitaire de France
4 EDHEC Business School

We introduce public spending, financed through income taxation, in 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 large 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: indeterminacy; endogenous cycles; heterogeneous agents; public spending; endogenous labor supply; borrowing constraint

Domaines: 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. 2013. ⟨halshs-00796698⟩