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Capital mobility, public spending externalities and growth

Author

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  • Calin Arcalean

    (ESADE Business School, Universitat Ramon Llull)

Abstract

I present a two-country dynamic model where (i) in each country public spending increases firm entry and (ii) capital is internationally mobile. I show that the difference between the aggregate output elasticity with respect to public spending and its firm level counterpart creates a positive cross-border externality in public spending. In contrast with the literature on cross-border spillovers, this externality arises only under fiscal competition between countries and may therefore lead to higher growth rates under strategic policies relative to coordination.

Suggested Citation

  • Calin Arcalean, 2016. "Capital mobility, public spending externalities and growth," Economics Bulletin, AccessEcon, vol. 36(1), pages 22-28.
    • Handle: RePEc:ebl:ecbull:eb-15-00745
    as

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    References listed on IDEAS

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    1. Alesina, Alberto & Wacziarg, Romain, 1999. "Is Europe going too far?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 1-42, December.
    2. Chakraborty Shankha & Dabla-Norris Era, 2011. "The Quality of Public Investment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-29, August.
    3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    4. Devereux, Michael B & Mansoorian, Arman, 1992. "International Fiscal Policy Coordination and Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 249-268, May.
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    More about this item

    Keywords

    two-country model; productive public spending; balanced growth; strategic policies; coordination;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • H4 - Public Economics - - Publicly Provided Goods

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