ENDOGENOUS GROWTH AND PUBLIC SPENDING EXTERNALITIES

We analyse an endogenous growth model which appears as a synthesis of models of Uzawa [1965], Lucas [1988] and Barro [1990]. Contrary to the result of Barro, public spending has no effect on the long run rate of growth, but it does have a level-effect on the long-run growth path. Macroeconomic policies also have short run effects. Outside the long-run growth path, public spending increases the rates of growth of investment and consumption as well as the saving rate. Our empirical work confirms that intercountries rate of growth differentials may be explained by differentials in the marginal efficiency of public spending rather than by differentials in the shares of public spending in GNP.