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Government Purchases and Real Interest Rates with Endogenous Labour Supply *
Author(s) -
PALIVOS THEODORE,
YIP CHONG K.
Publication year - 1996
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1996.tb00967.x
Subject(s) - economics , government (linguistics) , interest rate , real interest rate , public interest , government spending , labour supply , lag , empirical evidence , action (physics) , public economics , public sector , public spending , macroeconomics , microeconomics , monetary economics , labour economics , market economy , economy , welfare , law , computer network , philosophy , linguistics , physics , epistemology , quantum mechanics , political science , computer science , politics
Within the one‐sector optimal growth framework with public services and labour‐leisure choice, we find that the effects of temporary productive government spending on the real interest rate depend on the discrepancy between actual and optimal government sizes as well as on the length of the action lag. This paper thus sheds light on the controversy between the empirical findings and the theoretical predictions regarding the behaviour of the real interest rate within the neoclassical framework.