This paper contributes to the ongoing debate on the relationship between austerity measures and economic growth. We propose a general equilibrium model where (i) agents have recursive preferences; (ii ) economic growth is endogenously driven by investments in R&D; (iii) the government is...

We study the general equilibrium implications of different fiscal policies on macroeconomic quantities, asset prices, and welfare by utilizing two endogenous growth models. The expanding variety model features only homogeneous innovations by entrants. The Schumpeterian growth model features...

Recent empirical evidence suggests that during the last years fiscally weak European countries significantly cut their R&D budgets in an effort to reduce their deficit, according to the spirit of the Fiscal Compact. We propose a general equilibrium model that endogenously captures the trade-off...

We shed new light on the macroeconomic effects of rising temperatures. In the data, a shock to global temperature dampens expenditures in research and development (R&D). We rationalize this empirical evidence within a stochastic endogenous growth model, featuring temperature risk and growth...