The Macroeconomics of TANSTAAFL

Arbeitspapier

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 pos- sibility 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeitrag ; No. 482

Classification and Topics

• 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.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Grossmann, Volker ; Steger, Thomas M. ; Trimborn, Timo
• Event: Veröffentlichung
• (who): Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
• (where): Hannover
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/73129
• Last update: 10.03.2025, 11:45 AM CET