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- Title
Public expenditure, risk sharing and economic growth.
- Authors
Zhang, Lifeng
- Abstract
We develop an endogenous growth model with expanding variety in which asymmetric information frictions arise when R&D firms need access to external funding to finance their R&D investments and public expenditure affects the magnitude of hidden costs, in turn affecting the severity of asymmetric information frictions. We show that public expenditure affects growth by influencing risk sharing, thereby identifying a new channel, unlike the standard mechanism used in the literature that emphasizes the role of public expenditure in directly improving the productivity of the private sector.
- Subjects
PUBLIC spending; ECONOMIC expansion; PUBLIC investments; INFORMATION asymmetry; RISK sharing; PRIVATE sector; ENDOGENOUS growth (Economics)
- Publication
Manchester School (1463-6786), 2024, Vol 92, Issue 1, p67
- ISSN
1463-6786
- Publication type
Article
- DOI
10.1111/manc.12456