A model of the optimal allocation of government expenditures

[en] Government expenditures can be used for various socioeconomic objectives, including public education, consumption of public goods and services, and social protection. This paper analyzes the optimal allocation of public expenditures among these competing functions. We establish an overlapping generations model with heterogeneous individuals in which the government optimally chooses income tax, transfer payment, educational spending, and public consumption. Our model characterizes the transitional dynamics and the steady state of each function with and without a pay-as-you-go intergenerational contract. We also conduct a simulation illustrating that the presence of an intergenerational contract may raise public consumption and social welfare in the steady state. © 2019 Wiley Periodicals, Inc.

Disciplines :

Macroeconomics & monetary economics

Author, co-author :

Fan, Simon; Department of Economics, Lingnan University, Tuen Mun, Hong Kong

Pang, Yu; School of Business, Macau University of Science and Technology, Taipa, Macau

Pestieau, Pierre ; Université de Liège - ULiège > HEC Liège > HEC Liège

Language :

English

Title :

A model of the optimal allocation of government expenditures

Publication date :

2020

Journal title :

Journal of Public Economic Theory

ISSN :

1097-3923

eISSN :

1467-9779

Publisher :

Blackwell, Oxford, United Kingdom

Volume :

Issue :

Pages :

845-876

Peer reviewed :

Peer Reviewed verified by ORBi

Available on ORBi :

since 08 February 2021

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