Non-Constant Discounting and Ak-Type growth models

Abstract

This paper analyzes an Ak-type endogenous growth model under non-constant discounting, assuming both naïve and sophisticated consumers. For both type of consumers an isoelastic utility with an intertemporal elasticity below one guarantees observational equivalence under exponential and non-constant discounting, but rejects strong equivalence (identical overall impatience does not leads to identical growth rates). Further, polices aimed at increasing productivity of the economy are less growth-enhancing than typically predicted by the literature with exponential discounting.