Revisiting the supply-side effects of government spending under incomplete markets
By: George-Marios Angeletos, Vasia Panousi
Contributors: Panousi, Vasia; National Bureau of Economic Research
Series: NBER working paper series -- working paper 13136; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13136.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "This paper revisits the macroeconomic effects of government consumption in the neoclassical growth model augmented with idiosyncratic investment (or entrepreneurial) risk.  Under complete markets, a permanent increase in government consumption has no long-run effect on the interest rate, the capital-labor ratio, and labor productivity, while it increases work hours due to the familiar negative wealth effect.  These results are upset once we allow for incomplete markets.  The very same negative wealth effect now causes a reduction in risk taking and investment.  This in turn leads to a lower risk-free rate and, under certain conditions, also to a lower capital-labor ratio, lower productivity and lower wages"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/25/2007.

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