Non-constant discounting and Ak-type growth models

- Non-constant discounting in Ak-type endogenous growth models.
- Observational and strong equivalence between constant and non-constant discounting.
- Observational equivalence for naïve and sophisticated agents.
- Non strong equivalence when intertemporal elasticity of consumption is lower than one.
- Policies raising TFP are less growth-enhancing than under exponential discounting.

This paper analyzes an Ak-type endogenous growth model under non-constant discounting, assuming both naïve and sophisticated consumers. For both types 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 lead 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.