Fiscal Policies in a Finite Horizon Model with the Spirit of Capitalism

This paper examines the effects of government debt and deficit, income tax, and public investment on economy in a endogenous growth model with finite-horizon, the spirit of capitalism, and government expenditure. It shows that with the increasing of the spirit of capitalism and life horizon (the probability of death will be decreasing), the growth rate and the public investment (government expenditure-output ratio) will be increasing; but the consumption-capital ratio will be decreasing; The effects of income tax rate and public investment on growth rate and consumption-capital ratio appear Laffer curve style, thus we present the optimal income tax rate and public investment, which is different from Barro (1990), the optimal income tax rate and public investment will not be equal yet. The effects of government debt and social security on economy are included also.