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2016 | OriginalPaper | Chapter

4. Neoclassical Economic Growth and Public Policy

Author : Tatsuya Omori

Published in: Sustainable Growth and Development in a Regional Economy

Publisher: Springer Japan

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Abstract

Most of economic agents evaluate the current economic situation with the economic growth rate, especially the growth rate of gross domestic product (GDP)

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Footnotes
1
If we denote GDP t the economic growth rate of year t, we can show the economic growth rate at year t, γ t as
$$\displaystyle{\gamma _{t}(\%) = \frac{GDP_{t} - GDP_{t-1}} {GGP_{t-1}} \times 100.}$$
 
2
For the text book on this issue, we have Intriligator [10], Barro and Sala-i-Martin [4], Acemoglu [1], Aghion and Howitt [2] and others.
 
3
The representative growth model other than neoclassical growth model is Harrod [8] and Domar [7].
 
4
This chapter is based on Omori [11].
 
5
You can see the more detail discussion at Intriligator [10].
 
6
Divided (4.4) by L,
$$\displaystyle{i = \frac{I} {L} = \frac{\dot{K}} {L} +\mu \frac{K} {L} = \frac{\dot{K}} {L} +\mu k.}$$
Furthermore, differentiate the capital per capita, k with respect to time, t,
$$\displaystyle{\dot{k} = \frac{d\left (\frac{K} {L} \right )} {dt} = \frac{\dot{K}} {L} -\frac{\dot{L}} {L} \frac{K} {L} = \frac{\dot{K}} {L} - nk.}$$
From these equations, we can show (4.5).
 
7
See Intriligator [10] for the way to solve the intertemporal decision.
 
8
In the steady state, from \(\dot{c_{M}} = 0\),
$$\displaystyle{\dot{c_{M}} = \frac{d\left ( \frac{C} {V L}\right )} {dt} = \frac{C} {V L}\left (\frac{\dot{C}} {C} -\frac{\dot{V }} {V } -\frac{\dot{L}} {L}\right ) = 0.}$$
Similarly from \(\dot{k_{M}} = 0\),
$$\displaystyle{\dot{k_{M}} = \frac{d\left ( \frac{K} {V L}\right )} {dt} = \frac{K} {V L}\left (\frac{\dot{K}} {K} -\frac{\dot{V }} {V } -\frac{\dot{L}} {L}\right ) = 0.}$$
Then,
$$\displaystyle{\frac{\dot{K}} {K} = \frac{\dot{C}} {C} = \frac{\dot{V }} {V } + \frac{\dot{L}} {L} =\upsilon +n.}$$
.
 
9
The overlapping generations model is developed based on the neoclassical growth model.
 
Literature
1.
go back to reference Acemoglu, D. (2009). Introduction to modern economic growth. Princeton: Princeton University Press. Acemoglu, D. (2009). Introduction to modern economic growth. Princeton: Princeton University Press.
2.
go back to reference Aghion, P., & Howitt, P. (2009). The economics of growth. Cambridge: MIT. Aghion, P., & Howitt, P. (2009). The economics of growth. Cambridge: MIT.
3.
go back to reference Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98, S103–S125.CrossRef Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98, S103–S125.CrossRef
4.
go back to reference Barro, R. J., & Sala-i-Martin, X. (2004). Economic growth (2nd ed.). London/Cambridge: MIT Press. Barro, R. J., & Sala-i-Martin, X. (2004). Economic growth (2nd ed.). London/Cambridge: MIT Press.
5.
go back to reference Cass, S. (1965). Optimum growth in an aggregative model of capital accumulation. Review of Economic Studies, 32, 233–240.CrossRef Cass, S. (1965). Optimum growth in an aggregative model of capital accumulation. Review of Economic Studies, 32, 233–240.CrossRef
6.
go back to reference Diamond, P. A. (1965). National debt in a neoclassical growth model. American Economic Review, 55(5), 1126–1150. Diamond, P. A. (1965). National debt in a neoclassical growth model. American Economic Review, 55(5), 1126–1150.
7.
go back to reference Domar, E. D. (1946). Capital expansion, rate of growth, and employment. Econometrica, 14, 137–147.CrossRef Domar, E. D. (1946). Capital expansion, rate of growth, and employment. Econometrica, 14, 137–147.CrossRef
8.
go back to reference Harrod, R. F. (1939). An Essay in dynamic theory. Economic Journal, 49, 14–33.CrossRef Harrod, R. F. (1939). An Essay in dynamic theory. Economic Journal, 49, 14–33.CrossRef
9.
go back to reference Inada, K. (1963). On a two-sector model of economic growth: Comments and a generalization. Review of Economic Studies, 30(2), 119–127.CrossRef Inada, K. (1963). On a two-sector model of economic growth: Comments and a generalization. Review of Economic Studies, 30(2), 119–127.CrossRef
10.
go back to reference Intriligator, M. D. (2002). Mathematical optimization and economic theory. Philadelphia: Society for Industrial and Applied Mathematics.CrossRef Intriligator, M. D. (2002). Mathematical optimization and economic theory. Philadelphia: Society for Industrial and Applied Mathematics.CrossRef
11.
go back to reference Omori, T. (2009, in Japanese). Effects of tax and allocation of public expenditure on economic growth. Desertation for Doctor of Economics, Nagoya University. Omori, T. (2009, in Japanese). Effects of tax and allocation of public expenditure on economic growth. Desertation for Doctor of Economics, Nagoya University.
12.
go back to reference Rebelo, S. (1991). Long-run policy analysis and long-run growth. Journal of Political Economy, 99, 500–521.CrossRef Rebelo, S. (1991). Long-run policy analysis and long-run growth. Journal of Political Economy, 99, 500–521.CrossRef
13.
go back to reference Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94, 1002–1037.CrossRef Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94, 1002–1037.CrossRef
14.
go back to reference Samuelson, P. (1958). An exact consumption-loan model of interest with or without the social contrivance of money. Journal of Political Economy, 66, 467–482.CrossRef Samuelson, P. (1958). An exact consumption-loan model of interest with or without the social contrivance of money. Journal of Political Economy, 66, 467–482.CrossRef
15.
go back to reference Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70, 65–94.CrossRef Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70, 65–94.CrossRef
Metadata
Title
Neoclassical Economic Growth and Public Policy
Author
Tatsuya Omori
Copyright Year
2016
Publisher
Springer Japan
DOI
https://doi.org/10.1007/978-4-431-55294-9_4