Abstract:
In this paper، we develop a Ramsey-type endogenous growth model in which government spending on property rights protection is a major determinant of economic growth. This model includes equations for welfare، private and public sectors production. We introduce the legal efficiency into private production function، and X-inefficiency parameter into public production function. Also، we consider the deficit rule for government rather than balanced budget rule. One contribution of this study is that، we compute the optimal share of property rights protection in Steady-State. The other one is considering the preferences as endogenous rather than exogenous. We show that the effect of property rights protection on economic growth depends on the statues of tax system (tax rate)، and government fiscal rule. We calibrate the model by using the Iranian economy data set during 1959-2004. The results show that in order to achieve 2 percent growth rate، the share of government spending on property rights protection should be at least 35 percent. This Figure is 5.8 percent at present.
Machine summary:
Considering preferences as endogenous, not assuming a balanced budget (a fiscal deficit rule instead of a balanced budget rule), considering the efficiency of the legal system, the inefficiency of state-owned enterprises, and property rights protection expenditures instead of the probability of plunder or the number of aligned groups, and assuming a logistic growth rate for the population are some of these differences.
The results of calibrating the developed model based on Iranian economic data showed that to achieve a minimum economic growth rate of 2%, more than 35% of property rights protection expenditures are needed.
Only in two existing studies (according to the authors' information), the optimal rate of protection of intellectual property rights has been estimated and its impact on economic growth and welfare has been investigated within an endogenous growth model.
3- Basic Model In this section, the theoretical framework of the endogenous growth model developed with equations for economic welfare, private sector production, and public sector production based on optimal control theory is described.
Hediger, by introducing social capital into the welfare function, considered preferences to be endogenous, but in the present article and based on the explanations provided, the variable related to protection of property rights has been used.
Therefore, considering the effect of scale and endogenous preferences (with the variable of expenditures on protecting property rights) simultaneously is one of the differences between equation (1) and other available studies, and it constitutes part of the theoretical achievement of the present study.
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