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By contrasting endogenous growth models with facts, one is frequently confronted with the prediction that levels of economic variables, such as R&D expenditures, imply lasting effects on the growth rate of an economy. As stylized facts show, the research intensity in most advanced countries has dramatically increased, mostly more than the GDP. Yet, the growth rates have roughly remained constant or even declined. In this paper we modify the Romer endogenous growth model and test our variant of the model using time series data. We estimate the market version both for the US and Germany for the time period January 1962 to April 1996. Our results demonstrate that the model is compatible with the time series for aggregate data in those countries. All parameters fall into a reasonable range. [ABSTRACT FROM AUTHOR]

The paper presents and estimates an endogenous growth model with public capital and government borrowing. Government behavior (tax rates, spending and borrowing) does not follow optimizing rules but is restricted by two fiscal regimes (rules). In the strict fiscal regime government borrowing is used for public investment only. In the less strict regime it can also be used for public investment and to a certain degree for the debt service. The growth rate differs in our model variants according to which rule is adopted. Moreover, the growth maximizing income tax rate is different from zero. For the two relevant fiscal regimes, which correspond roughly to the cases of the U.S. and Germany, the model is estimated by employing time series data from 1960.4 to 1992.1 and 1966.1 to 1995.1 respectively. The results suggest an explanation for the different time paths of economic variables in the American and German economies in the post-war period. [ABSTRACT FROM AUTHOR]