Keywords
government spending
technological change
human capital
productivity
wages
How to Cite
Abstract
The effects of government spending as a promoter of technological change are studied within the framework of a closed economy with a technology of constant returns to scale. Such government participation generates a change in production conditions, thereby raising marginal productivity by either generating new technologies or increasing human capital. The rate of economic growth in equilibrium and optimal spending for maximizing economic welfare are determined within an endogenous growth model. Likewise, the impact of price shocks, wage shocks, and government spending shocks on economic welfare is addressed. Finally, some simulations are performed in order to establish the impact of government spending on economic growth rate.
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