Government Spending in a Simple

Model of Endogenous Growth

Robert j Barro
I extend existing models of endogenous economic growth to incorporate a
government sector. Production involves private capital (broadly defined) and
public services. There is constant returns to scale in the two factors, but
diminishing returns to each separately. Public services are financed by a flat- rate
income tax. The economy's growth rate and saving rate initially rise with the ratio
of productive government expenditures to CNP, g/y, but each rate eventually
reaches a peak and subsequently declines. If the production function is CobbDouglas with an exponent o for public services, then the value g/y = a maximizes
the growth rate, and also maximizes the utility attained by the representative
consumer. The distortion from the income tax implies that the decentralized
equilibrium is not Pareto optimal; in particular, the growth and saving rates are
too low from a social perspective. In a command optimum, growth and saving
rates are higher, but g/y = a turns out still to be the best choice for the size of
government. The command optimum can be sustained by picking the expenditure
ratio, g/y = a, and then financing this spending by lump sum taxes. If the share of
productive spending, g/y, were chosen randomly, then the model would predict a
non-monotonic relation between g/y and the economy's long- term growth and
saving rates. However, for optimizing governments, the model predicts an inverse
association between g/y and the rates of growth and saving.

Am extind modele existente de cretere

economic endogen pentru a ncorpora un
sector guvernamental. Producie

presupune capital privat (definit n sens

larg) i a serviciilor publice. Nu
exist randamente
constante la scar din doi
factori, dardiminuarea revine la fiecare
separat. Serviciile publice sunt
finanate printr-un impozit pe
venit forfetar. Rata de cretere economic
i rata de economisire crete iniial
curaportul dintre cheltuielile
guvernamentale productive la CNP, g / y, d
ar fiecare rata atinge n cele din urm o
valoare de vrf i, ulterior, scade. n cazul
n funcia de producieCobbDouglas este cu un exponent o pentru
servicii publice, atunci valoarea g / y
= omaximizeaz rata de cretere, i
maximizeaz, de asemenea, de
utilitate atins deconsumator reprezentativ.Di
storsiune de la impozitul pe
venit presupune c echilibruldescentralizat
nu este Pareto optim, n special, creterea
economic i ratele de economisire sunt

prea mici dintr-o perspectiv social. ntrun optim de comand,creterea economic

i rata de economisire sunt mai
mari, dar g / y = a se dovedete a fi n
continuare cea mai bun alegere
pentru mrimea
guvernului.Optim comand
poatefi susinut prin
alegerea raportului cheltuielilor, g / y
= o, iar apoi finanarea acestor
cheltuieli prin impozite forfetare. n cazul n
care ponderea cheltuielilor productive, g / y,
au fost
alese aleatoriu, atunci modelul va prezice o
relaie non-monoton ntre g / Y
ieconomiei cretere pe termen lung i
ratele de economisire. Cu toate
acestea, pentru
optimizarea guverne, modelul prezice o
asociere inversa intre g / Y i ratele
de cretere economic i de economisire.