On the Role of Government Expenditure in a Growing Economy with Endogenous Labor Supply

The role of government expenditure is analyzed in the context of growing economy with endogenous labor supply and with investment adjustment costs. Assuming the dynasty model of representative consumer’s utility maximization i.e., the present value of over time felicity function maximization under the law of motion capital where felicity function depends consumption, leisure and government expenditure, the global stability of the economy is derived showing investment-capital ratio to decrease as increase in capital-labor ratio. Further the increase in government expenditure is seen to increase investment-capital ratio and labor but decrease consumption globally. JEL Classification Code: E13, E62, H30, J22