Essays on public expenditure and economic growth

Pedro Cavalcanti G Ferreira, University of Pennsylvania


This dissertation studies the impact of public expenditures on economic growth from various perspectives. The first essay empirically estimates the impact of public capital and investment on output and productivity growth. We initially run traditional growth accounting regressions and later we construct and estimate a simple endogenous growth model. In both cases public capital is a separate argument of the production function. Our results indicate that the impact of the public variable on growth rates and economic activity is always positive, although the estimated elasticity of output to government capital varies with the data set used. The positive impact on productivity growth we found supports the argument that the slowdown in productivity growth can be partially explained by the inability of public investment to keep pace with GNP during the last two decades. In the second essay we study the relationship between inflation and growth in the context of an overlapping generations model. Government finances expenditures through money creation and uses the revenues to pay for education and other productivity improving activities. We show that for some interval of money creation rates there is an equilibrium where money is valued and steady state physical capital grows with the rate of inflation. It is also shown that it is always optimal to introduce some inflation in the economy, but it is never optimal to maximize seignorage. The last essay addresses the welfare and macroeconomic effects of fiscal policy in a framework where government chooses tax rates and the distribution of revenues between consumption and investment. We construct and simulate a model where public consumption affects individuals' utility and public capital is an argument of the production function. The simulations suggest that by simply reallocating expenditures from consumption to investment, the government can improve welfare and increase productivity and output in equilibrium. Furthermore, we show that the magnitude and direction of the long run impact of fiscal policy depends on the elasticity of output to public capital. If this parameter is high enough, capital stock may increase with tax rates for certain intervals of taxes.

Subject Area

Economic theory|Agricultural economics

Recommended Citation

Ferreira, Pedro Cavalcanti G, "Essays on public expenditure and economic growth" (1993). Dissertations available from ProQuest. AAI9331774.