Hostname: page-component-7b7567c8c-fvjsw Total loading time: 0 Render date: 2026-11-15T14:01:23.451Z Has data issue: false hasContentIssue false
  • English
  • Français

ENDOGENOUS TIME PREFERENCE AND PUBLIC POLICY: GROWTH AND FISCAL IMPLICATIONS

Published online by Cambridge University Press:  22 October 2010

Evangelos V. Dioikitopoulos and
Sarantis Kalyvitis
Evangelos V. Dioikitopoulos*
Affiliation:
University of Cyprus
Sarantis Kalyvitis
Affiliation:
Athens University of Economics and Business
*
Address correspondence to: Evangelos V. Dioikitopoulos, Department of Economics, University of Cyprus, P.O. Box 20537, CY-1678 Nicosia, Cyprus; e-mail: evangelos.dioikitopoulos@aueb.gr.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

This paper studies the growth and fiscal policy implications of the assumption that public policy generates an externality in the individual rate of time preference through the aggregate public capital stock. We examine the competitive equilibrium properties and we solve for endogenous growth–maximizing fiscal policy. We investigate the behavior of the government size and the growth rate to the sensitivity of time preference to public capital and the magnitude of public capital externality on production. We find that the Barro taxation rule [Barro, Robert J., Journal of Political Economy 98 (1990), 103–125], which states that the elasticity of public capital in the production function should equal the government size, is suboptimal. We show that the government does not necessarily have to increase income taxation following a rise in public capital intensity because of the externality of public capital on time preference and, in turn, on growth and the tax base of the economy.

Keywords

Endogenous Time PreferencePublic Capital ExternalitiesGrowth-Maximizing Fiscal Policies

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 14 , Supplement S2: Public Policy, Externalities, and Economic Growth , November 2010, pp. 243 - 257
Copyright
Copyright © Cambridge University Press 2010

References

REFERENCES

Agenor, Pierre-Richard (2006) A Theory of Infrastructure-Led Development. Discussion Paper EDP-0640, University of Manchester.Google Scholar
Agenor, Pierre-Richard (2008) Health and infrastructure in a model of endogenous growth. Journal of Macroeconomics 30, 1407–1422.CrossRefGoogle Scholar
Aisa, Rosa and Pueyo, Fernando (2006) Government health spending and growth in a model of endogenous longevity. Economics Letters 90, 249–253.CrossRefGoogle Scholar
Asenso-Boadi, Francis, Peters, Tim J., and Coast, Joanna (2008) Exploring differences in empirical time preference rates for health: An application of meta-regression. Health Economics 17, 235–248.CrossRefGoogle ScholarPubMed
Barro, Robert J. (1990) Government spending in a simple model of endogenous growth. Journal of Political Economy 98, 103–125.CrossRefGoogle Scholar
Barro, Robert J. (1999) Ramsey meets Laibson in the neoclassical growth model. Quarterly Journal of Economics 114, 1125–1152.CrossRefGoogle Scholar
Bauer, Michal and Chytilova, Julie (2010). The impact of education on subjective discount rate in Ugandan villages. Economic Development and Cultural Change 58, 643–669.CrossRefGoogle Scholar
Becker, Gary S. and Mulligan, Casey B. (1997) The endogenous determination of time preference. Quarterly Journal of Economics 112, 729–758.CrossRefGoogle Scholar
Bhattacharya, Joydeep and Qiao, Xue (2007) Public and private expenditures on health in a growth model. Journal of Economic Dynamics and Control 31, 2519–2535.CrossRefGoogle Scholar
Blankenau, William F. and Simpson, Nicole B. (2004) Public education expenditures and growth. Journal of Development Economics 73, 583–605.CrossRefGoogle Scholar
Chakraborty, Shankha (2004) Endogenous lifetime and economic growth. Journal of Economic Theory 116, 119–136.CrossRefGoogle Scholar
Chao, Li-Wei, Szrek, Helena, Pereira, Nuno Sousa, and Pauly, Mark V. (2009) Time preference and its relationship with age, health, and survival probability. Judgment and Decision Making 4, 1–19.CrossRefGoogle ScholarPubMed
Chen, Been-Lon (2007) Multiple bgps in a growth model with habit persistence. Journal of Money, Credit and Banking 39, 25–48.CrossRefGoogle Scholar
Devarajan, Shantayanan, Swaroop, Vinaya, and Zou, Heng-fu (1996) The composition of public expenditure and economic growth. Journal of Monetary Economics 37, 313–344.CrossRefGoogle Scholar
Dolmas, Jim (1996) Balanced-growth-consistent recursive utility. Journal of Economic Dynamics and Control 20, 657–680.CrossRefGoogle Scholar
Drugeon, Jean-Pierre (1996) Impatience and long-run growth. Journal of Economic Dynamics and Control 20, 281–313.CrossRefGoogle Scholar
Drugeon, Jean-Pierre (2000) On the roles of impatience in homothetic growth paths. Economic Theory 15, 139–161.CrossRefGoogle Scholar
Economides, George, Park, Hyun, and Philippopoulos, Apostolis (2007) Optimal protection of property rights in a general equilibrium model of growth. Scandinavian Journal of Economics 109, 153–175.CrossRefGoogle Scholar
Epstein, Larry G. and Hynes, J. Allan (1983) The rate of time preference and dynamic economic analysis. Journal of Political Economy 91, 611–635.CrossRefGoogle Scholar
Fuchs, Victor R. (1982) Time preference and health: An exploratory study. In Fuchs, Victor R. (ed.), Economic Aspects of Health, pp. 93–120. Chicago: University of Chicago Press.CrossRefGoogle ScholarPubMed
Futagami, Koichi, Morita, Yuichi, and Shibata, Akihisa (1993) Dynamic analysis of an endogenous growth model with public capital. Scandinavian Journal of Economics 95, 607–625.CrossRefGoogle Scholar
Glomm, Gerhard and Ravikumar, B. (1997) Productive government expenditures and long-run growth. Journal of Economic Dynamics and Control 21, 183–204.CrossRefGoogle Scholar
Glomm, Gerhard and Ravikumar, B. (1998) Flat-rate taxes, government spending on education, and growth. Review of Economic Dynamics 1, 306–325.CrossRefGoogle Scholar
Greiner, Alfred and Hanusch, Horst (1998) Growth and welfare effects of fiscal policy in an endogenous growth model with public investment. International Tax and Public Finance 5, 249–261.CrossRefGoogle Scholar
Harrison, Glenn W., Lau, Morten I., and Williams, Melonie B. (2002) Estimating individual discount rates in Denmark: A field experiment. American Economic Review 92, 1606–1617.CrossRefGoogle Scholar
Hashimoto, Ken-ichi and Tabata, Ken (2005) Health infrastructure, demographic transition and growth. Review of Development Economics 9, 549–562.CrossRefGoogle Scholar
Horioka, Charles Y. (1990) Why is Japan's households saving so high? A literature survey. Journal of the Japanese and International Economies 4, 49–92.CrossRefGoogle Scholar
Khwaja, Ahmed, Silverman, Dan, and Sloan, Frank (2007) Time preference, time discounting, and smoking decisions. Journal of Health Economics 26, 927–949.CrossRefGoogle ScholarPubMed
Kirby, Kris N., Godoy, Ricardo, Reyes-Garcia, Victoria, Byron, Elizabeth, Apaza, Lilian, Leonard, William, Perez, Eddy, Vadez, Vincent, and Wilkie, David (2002) Correlates of delay-discount rates: Evidence from Tsimane' Amerindians of the Bolivian rain forest. Journal of Economic Psychology 23, 291–316.CrossRefGoogle Scholar
Laibson, David (1997) Golden eggs and hyperbolic discounting. Quarterly Journal of Economics 112, 443–477.CrossRefGoogle Scholar
Lau, Sau-Him Paul (1995) Welfare-maximizing vs. growth-maximizing shares of government investment and consumption. Economics Letters 47, 351–359.CrossRefGoogle Scholar
Lawrance, Emily C. (1991) Poverty and the rate of time preference: Evidence from panel data. Journal of Political Economy 99, 54–77.CrossRefGoogle Scholar
Lazaro, Angelina, Barber, Ramon, and Rubio, Encarnacion (2001) Private and social time preferences for health and money: An empirical investigation. Health Economics 10, 351–356.CrossRefGoogle Scholar
Meng, Qinglai (2006) Impatience and equilibrium indeterminacy. Journal of Economic Dynamics and Control 30, 2671–2692.CrossRefGoogle Scholar
Misch, Florian, Gemmell, Norman, and Kneller, Richard (2008) Growth and Welfare Maximization in Models of Public Finance and Endogenous Growth. CREDIT Research Paper 08/09, University of Nottingham.Google Scholar
Mourmouras, Iannis A. and Lee, Jong Eun (1999) Government spending on infrastructure in an endogenous growth model with finite horizons. Journal of Economics and Business 51, 395–407.CrossRefGoogle Scholar
Obstfeld, Maurice (1990) Intertemporal dependence, impatience and dynamics. Journal of Monetary Economics 26, 45–75.CrossRefGoogle Scholar
Olsen, Jan Abel (1993) Time preferences for health gains: An empirical investigation. Health Economics 2, 257–265.CrossRefGoogle ScholarPubMed
Palivos, Theodor, Wang, Ping, and Zhang, Jianbo (1997) On the existence of balanced growth equilibrium. International Economic Review 38, 205–224.CrossRefGoogle Scholar
Sheldon, Garon (1997) Molding Japanese Minds: The State in Everyday Life. Princeton, NJ: Princeton University Press.Google Scholar
Sheldon, Garon (1998) Fashioning a culture of diligence and thrift: Savings and frugality campaigns in Japan, 1900–1931. In Minichiello, Sharon (ed.), Japan's Competing Modernities: Issues in Culture and Democracy, 1900–1930, pp. 312–334. Honolulu: University of Hawaii Press.Google Scholar
Shin, Shouyong and Epstein, Larry G. (1993) Habits and time preference. International Economic Review 34, 61–84.Google Scholar
Shoda, Yuichi, Mischel, Walter, and Peake, Philip K. (1990) Predicting adolescent cognitive and self-regulatory competencies from preschool delay of gratification: Identifying diagnostic conditions. Developmental Psychology 26, 978–986.CrossRefGoogle Scholar
Stern, Michael L. (2006) Endogenous time preference and optimal growth. Economic Theory 29, 49–70.CrossRefGoogle Scholar
Strauss, John and Thomas, Duncan (1998) Health, nutrition, and economic development. Journal of Economic Literature 36, 766–817.Google Scholar
Strotz, Robert H. (1956) Myopia and inconsistency in dynamic utility maximization. Review of Economic Studies 23, 165–180.CrossRefGoogle Scholar
Tanaka, Jumpei (2002) A note on government spending on infrastructure in an endogenous growth model with finite horizon. Economics Letters 54, 651–653.Google Scholar
Turnovsky, Stephen J. (2000) Methods of Macroeconomic Dynamics, 2nd ed.Cambridge, MA: MIT Press.Google Scholar
Uzawa, Hirofumi (1968) Time preference, the consumption function, and optimal asset holdings. In Wolfe, John N. (ed.), Value, Capital and Growth: Papers in Honour of Sir John Hicks, pp. 485–504. Edinburgh: Edinburgh University Press.Google Scholar
Van der Pol, Marjon M. and Cairns, John A. (2000) Zero and negative time preference for health. Health Economics 9, 171–175.3.0.CO;2-Z>CrossRefGoogle ScholarPubMed