DP606 Saving and Endogenous Growth: A Survey of Theory and Policy
The paper surveys and extends recent results on the effect of changes in government fiscal and financial policy, and in private savings behaviour, on economic growth. Private saving behaviour is represented by an overlapping generations (OLG) model. The supply side of the model permits endogenous growth through aggregate constant returns to an augmentable input. Private sector behaviour is parameterized with the time preference rate, the intertemporal elasticity of substitution, the birth rate, the death rate and the rate at which labour productivity declines with age. Fiscal instruments include public consumption spending, the capital income tax rate, deficit financing and balanced-budget intergenerational redistribution (an unfunded social security retirement scheme).
