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Should The Private Sector Provide Public Capital?

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  • CHATTERJEE, SANTANU

Abstract

The choice between private and government provision of a productive public good like infrastructure (public capital) is examined in the context of an endogenously growing open economy. The accumulation of public capital need not require government provision, in contrast to the standard assumption in the literature. Even with an efficient government, the relative costs and benefits of government and private provision depend crucially on the economy s underlying structural conditions and borrowing constraints in international capital markets. Countries with limited substitution possibilities and large production externalities may benefit from governments encouraging private provision of public capital through targeted investment subsidies. By contrast, countries with flexible substitution possibilities and relatively smaller externalities may benefit either from governments directly providing public capital or from regulation of private providers. The transitional dynamics also are shown to depend on the underlying elasticity of substitution and the size of the production externality.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 11 (2007)
Issue (Month): 03 (June)
Pages: 318-346

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Handle: RePEc:cup:macdyn:v:11:y:2007:i:03:p:318-346_06

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Cited by:
  1. Chatterjee, Santanu & Mahbub Morshed, A.K.M., 2011. "Infrastructure provision and macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1288-1306, August.
  2. Chatterjee, Santanu & Mahbub Morshed, A.K.M., 2011. "Reprint to: Infrastructure provision and macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1405-1423, September.
  3. Mihaela Pintea & Stephen Turnovsky, 2006. "Congestion and Fiscal Policy in a Two-Sector Economy with Public Capital: A Quantitative Assessment," Computational Economics, Society for Computational Economics, vol. 28(2), pages 177-209, September.

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