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Fiscal Policy In A Growing Economy With Public Capital

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TURNOVSKY, STEPHEN J.

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Abstract

Public capital subject to congestion is introduced into an endogenousgrowth model and the transitional dynamic paths under alternativefiscal policies are characterized. Several new insights are obtainedfrom this more general framework. During the transition, the twocapital stocks always approach their common equilibrium growth ratefrom opposite directions. Government policy induces the more volatileresponse in the capital stock upon which it impinges most directly:private capital in the case of a tax, public capital in the case ofexpenditure. Finally, we characterize a time-varying income tax thatenables the decentralized economy to replicate both the first-besttransitional dynamics and steady-state equilibrium of a centrallyplanned economy. The steady-state component corrects forexternalities that arise when government expenditure deviates fromits social optimum, and the effects of congestion. The transitionalcomponent corrects for myopic behavior by the representative agentalong the adjustment path.

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

Volume (Year): 1 (1997)
Issue (Month): 03 (September)
Pages: 615-639
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:macdyn:v:1:y:1997:i:03:p:615-639_00

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  1. Theo S Eicher & Stephen Turnovsky, 1998. "Scale, Congestion, and Growth," Discussion Papers in Economics at the University of Washington 0071, Department of Economics at the University of Washington. [Downloadable!]
    Other versions:
  2. Andreas Irmen & Johanna Kühnel, 2008. "Productive Government Expenditure and Economic Growth," Working Papers 0464, University of Heidelberg, Department of Economics, revised May 2008. [Downloadable!]
    Other versions:
  3. Hsiao-wen Hung, 2007. "First-best tax policy, congestion, and imperfect competition," International Review of Economics, Springer, vol. 54(1), pages 66-79, March. [Downloadable!] (restricted)
  4. Calderon, Cesar & Serven, Luis, 2008. "Infrastructure and economic development in Sub-Saharan Africa," Policy Research Working Paper Series 4712, The World Bank. [Downloadable!]
  5. Mihaela Pintea & Stephen Turnovsky, 2006. "Congestion and Fiscal Policy in a Two-Sector Economy with Public Capital: A Quantitative Assessment," Computational Economics, Springer, vol. 28(2), pages 177-209, September. [Downloadable!] (restricted)
  6. P R Agénor, 2005. "Schooling and Public Capital in a Model of Endogenous Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 61, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  7. P R Agénor, 2005. "Infrastructure Investment and Maintenance Expenditure: Optimal Allocation Rules in a Growing Economy," Centre for Growth and Business Cycle Research Discussion Paper Series 60, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  8. Marina Azzimonti-Renzo & Pierre-Daniel G. Sarte & Jorge Soares, 2003. "Optimal public investment with and without government commitment," Working Paper 03-10, Federal Reserve Bank of Richmond. [Downloadable!]
  9. Daniel Becker & Michael Rauscher, 2007. "Fiscal Competition in Space and Time: An Endogenous-Growth Approach," Thuenen-Series of Applied Economic Theory 74, University of Rostock, Institute of Economics, Germany. [Downloadable!]
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  10. Stephen Turnovsky, 1998. "On the Role of Government in a Stochastically Growing Open Economy," Discussion Papers in Economics at the University of Washington 0073, Department of Economics at the University of Washington. [Downloadable!]
    Other versions:
  11. Christophe Kamps, 2005. "The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries," International Tax and Public Finance, Springer, vol. 12(4), pages 533-558, August. [Downloadable!] (restricted)
    Other versions:
  12. Ingrid Ott, 2004. "Bureaucratic corruption and macroeconomic performance," Computing in Economics and Finance 2004 303, Society for Computational Economics. [Downloadable!]
  13. T. Tamai, 2008. "Optimal fiscal policy in an endogenous growth model with public capital: a note," Journal of Economics, Springer, vol. 93(1), pages 81-93, February. [Downloadable!] (restricted)
  14. Stephen Turnovsky, 1998. "Productive Government Expenditure in a Stochastically Growing Economy," Discussion Papers in Economics at the University of Washington 0056, Department of Economics at the University of Washington. [Downloadable!]
    Other versions:
  15. Dipankar Dasgupta & Koji Shimomura, 2006. "Public infrastructure, employment and sustainable growth in a small open economy with and without foreign direct investment," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 15(3), pages 257-291, September. [Downloadable!] (restricted)
  16. Maria Carme Riera i Prunera, 2003. "Deficit, human capital and economic growth dynamics," Working Papers in Economics 102, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
  17. Ingrid Ott & Stephen J. Turnovsky, 2005. "Excludable and Non-excludable Public Inputs: Consequences for Economic Growth," Working Paper Series in Economics 2, University of Lüneburg, Institute of Economics. [Downloadable!]
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  18. Ferreira, Pedro Cavalcanti Gomes & Nascimento, Leandro Gonçalves do, 2005. "Welfare and Growth Effects of Alternative Fiscal Rules for Infrastructure Investment in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 604, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  19. Mihaela Pintea, 2004. "Fiscal Policy in a Two-Sector Economy with Public Capital and Congestion," Working Papers 0402, Florida International University, Department of Economics. [Downloadable!]
    Other versions:
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