Abstract
The government size in developed economies expanded remarkably after the Second World War. This growth shaped the role of the government as a key player in the economic activity and the aggregate dynamics of a country. However, the way in which the government is represented in DSGE models is often reductive, containing homogeneous public spending and a few distortionary taxes without clear counterparts in fiscal data. This paper shows how dynamic general equilibrium models can incorporate a detailed government sector as defined in the System of National Accounts (SNA). This government features six types of public expenditures (i.e. the government’s intermediate consumption, public wage bill, debt service, public investment, and transfers to households both in-kind and other-than-in-kind), and five distortionary taxes (i.e. consumption tax, capital and labor income taxes, corporate tax and social contributions).
Funding source: Ministerio de Ciencia e Innovación
Award Identifier / Grant number: PID2019-107161GB-C31
Funding source: Agencia de Innovación y Desarrollo de Andalucía
Award Identifier / Grant number: SEJ-1512
Acknowledgments
The authors wish to thank Pau Pujolas, Tim Kehoe, Antonia Diaz, Luis Puch for useful comments, as well as the participants to the XIX SAET Conference on Current Trends in Economics and the 26th European Workshop on General Equilibrium Theory. The authors acknowledge financial support from Spanish national grant PID2019-107161GB-C31 (MICINN, Gobierno de España) and Spanish regional grant SEJ-1512 (CeiceExcelencia 2012, Junta de Andalucía).
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Supplementary Material
The online version of this article offers supplementary material (https://doi.org/10.1515/bejm-2020-0120).
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