The Conditions for a Balanced Growth in a Model with Public Finance: an Analytic Solution

This paper studies the equilibrium dynamics of a growth model with public finance where two different allocations of public resources are considered. The model simulta- neously determines the optimal shares of consumption, capital accumulation, taxes and composition of the two different public expenditures which maximize a representative household’s lifetime utilities for a centralized economy. The analysis supplies a closed form solution. Moreover, with one restriction on the parameters ( = ) we fully de- termine the solutions path for all variables of the model and determine the conditions for a balanced growth.