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Title:The macroeconomics of TANSTAAFL PDF Logo
Authors:Grossmann, Volker
Steger, Thomas M.
Trimborn, Timo
Issue Date:2011
Series/Report no.:Working Paper // Universität Leipzig 101
Abstract:This paper shows that dynamic inefficiency can occur in dynamic general equilibrium models with fully optimizing, infinitely-lived households even in a situation with underinvestment. We identify necessary conditions for such a possibility and illustrate it in a standard R&D-based growth model. Calibrating the model to the US, we show that a moderate increase in the R&D subsidy indeed leads to an intertemporal free lunch (i.e., an increase in per capita consumption at all times). Hence, Milton Friedman's conjecture There ain't no such thing as a free lunch (TANSTAAFL) may not apply.
Subjects:intertemporal free lunch
dynamic inefficiency
R&D-based growth
transitional dynamics
JEL:E20
H20
O41
Document Type:Working Paper
Appears in Collections:Working Papers, Universität Leipzig

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