Arbeitspapier

The macroeconomics of TANSTAAFL

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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.

Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 101

Classification
Wirtschaft
Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data)
Taxation, Subsidies, and Revenue: General
One, Two, and Multisector Growth Models
Subject
intertemporal free lunch
dynamic inefficiency
R&D-based growth
transitional dynamics

Event
Geistige Schöpfung
(who)
Grossmann, Volker
Steger, Thomas M.
Trimborn, Timo
Event
Veröffentlichung
(who)
Universität Leipzig, Wirtschaftswissenschaftliche Fakultät
(where)
Leipzig
(when)
2011

Handle
Last update
10.03.2025, 11:43 AM CET

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Object type

  • Arbeitspapier

Associated

  • Grossmann, Volker
  • Steger, Thomas M.
  • Trimborn, Timo
  • Universität Leipzig, Wirtschaftswissenschaftliche Fakultät

Time of origin

  • 2011

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