Abstract
A large and rich body of empirical and theoretical research examines the role of public expenditure in fostering economic growth. This paper develops a model of endogenous growth with a particular focus on the role of public expenditure in structural changes. We consider the dynamics of a multi-sector economy that allows for differences among sectors in the output elasticity of public expenditure, and demonstrate that there exists a unique balanced growth path that is locally saddle-path stable. Along the balanced growth path, the endogenous growth of public expenditure and its disproportionate effect on different sectors result in changes in the relative prices of goods, which, in turn, cause structural changes represented by a reallocation of resources across sectors. Quantitatively, the faster the economic growth triggered by the policy, the greater the changes in the reallocation of labor.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
