Government Spending in a Simple Model of Endogeneous Growth

One strand of endogenous-growth assumes constant returns to a broad concept of capital. I extend these models to include tax- financed government services that affect production or utility. Growth and saving rates fall with an increase in utility-type expenditures; the two rates rise initially with productive government expenditures but subsequently decline. With an income tax, the decentralized choices of growth and saving are "too low, " but if the production function is Cobb-Douglas, the optimizing government still satisfies a natural condition for productive efficiency. Empirical evidence across countries supports some of the hypotheses about government and growth.