Habit Formation, Public Capital Congestion Effect and Economic Growth

Journal: Modern Economics & Management Forum DOI: 10.32629/memf.v1i1.122

Jianfang Liu

Peking University

Abstract

This paper constructs an endogenous growth model including habit formation and public capital congestion effect, and analyzes the influence of fiscal policy and public capital congestion effect on economic growth under the framework of habit formation. It is found that under decentralized economy, there exists a unique equilibrium growth rate, and that the growth rate increases with the improvement of private production efficiency, public capital production efficiency and the reduction of public capital congestion effect. The influence of habit-forming parameters on the equilibrium growth rate depends on the relative risk aversion coefficient. In the social arrangement economy, habit formation and public capital jointly determine the problem of multiple equilibrium. Similarly, the increase of public capital congestion effect will also reduce the equilibrium economic growth rate.

Keywords

habit formation, public capital, congestion effect, economic growth

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References

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