PUEB research projects 2018-2020

Optimal level and structure of public expenditures in the endogenous growth theory of open economy

Source of funding: National Science Centre, Poland
Funding Scheme: OPUS
Project ID number: 2017/25/B/HS4/02076
Start date: 07.02.2018 
Finish date: 06.02.2021
Amount of funding:  174 400 zł

Rapid economic growth in Poland is accompanied by dynamic influx of foreign capital and intense growth of export and import, and, on the other hand, public expenditures – in part financed by the EU funds – become increasingly important: for transport infrastructure, education, research and development, etc. Meanwhile, vast majority of theoretical literature on endogenous growth, and in particular models of optimal public spending, is dedicated to the “closed economy”. There are no capital flows between countries, no FDI, and even export and import is absent. On top of that, the issue of external debt is also often neglected. 

Therefore, the primary aim of this project is to use this large pool of knowledge and extend the most important results to the case of small open economy (SOE). The world literature related to the role of fiscal policy in the SOE endogenous growth theory is very scarce, and in Poland it is literary non-existent. Within the framework of the project we will seek out the optimum level and structure of public expenditures on: 
- public consumption (so-called unproductive public spending) 
- infrastructure investments (public expenditures that increase the stock of public capital), 
- public services (the flow of public services, not subject to accumulation) 
- investments in human capital (education, research and development) 

An additional, important goal of this project is the calibration of the model with macroeconomic data for Poland, and creating simulations regarding the long-run and temporary (transitional) effects of various types of public spending. 

This project is a continuation of and (in our opinion) the indispensable complement of research carried out by us in the last few years, that focused on the other side of the coin, that is, the optimal tax policy at SOE, with application for Poland. In particular, we were searching for optimal tax rates of 5 types, the optimal size of the budget deficit (in % of GDP) and public debt structure (the share of foreign creditors). The results of this work have been published, inter alia, in the book by Konopczyński (2015), which was awarded in 2016 by Polish Economic Society with the Prof. Edward Lipinski Prize.
Principal Investigator:  
dr hab. Michał Konopczyński, prof. UEP
Department of Mathematical Economics, Institute of Informatics and Quantitative Economics

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