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Public capital maintenance and congestion: Long-run growth and fiscal policies

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  • Dioikitopoulos, Evangelos V.
  • Kalyvitis, Sarantis

Abstract

In this paper we study an endogenous growth model, in which public maintenance expenditures affect the depreciation rate of public capital and the latter is subject to congestion. We find that economies with low congestion in public infrastructure will require a threshold level of public capital maintenance for ongoing growth. We also examine the fiscal implications of public capital maintenance policies and we find that the composition of public capital expenditures under congestion is a crucial determinant of optimal and growth-maximizing fiscal policies. The government can affect the return of public capital by re-allocating public expenditures between 'new' public investment and maintenance and hence avoid excessive taxation that is required under increasing congestion.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 12 (December)
Pages: 3760-3779

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:12:p:3760-3779

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Public capital maintenance Congestion Optimal fiscal policies;

References

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  1. Theo S Eicher & Stephen Turnovsky, 1998. "Scale, Congestion, and Growth," Working Papers 0071, University of Washington, Department of Economics.
  2. Omar Licandro & Luis A. Puch & J. Ramón Ruiz Tamaritz, 2001. "Optimal Growth under Endogeneous Depreciation, Capital Utilization and Maintenance Costs," Documentos del Instituto Complutense de Análisis Económico 0101, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  3. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
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  13. Devarajan, Shantayanan & Danyang, Xie & Zou, Heng-fu, 1998. "Should public capital be subsidized or provided?," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 319-331, April.
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  17. Hulten, Charles R & Peterson, George E, 1984. "The Public Capital Stock: Needs, Trends, and Performance," American Economic Review, American Economic Association, vol. 74(2), pages 166-73, May.
  18. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  19. Pantelis Kalaitzidakis & Sarantis Kalyvitis, 2005. "“New” Public Investment and/or Public Capital Maintenance for Growth? The Canadian Experience," Economic Inquiry, Western Economic Association International, vol. 43(3), pages 586-600, July.
  20. Bumgarner, Mary & Martinez-Vazquez, Jorge & Sjoquist, David L, 1991. "Municipal Capital Maintenance and Fiscal Distress," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 33-39, February.
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  22. Kalaitzidakis, Pantelis & Kalyvitis, Sarantis, 2004. "On the macroeconomic implications of maintenance in public capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 695-712, March.
  23. Lee, Jisoon, 1992. "Optimal size and composition of government spending," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 423-439, December.
  24. Edwards, John H. Y., 1990. "Congestion function specification and the "publicness" of local public goods," Journal of Urban Economics, Elsevier, vol. 27(1), pages 80-96, January.
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Cited by:
  1. Lai, Ching-Chong & Liao, Chih-Hsing, 2012. "Optimal nonlinear income taxation with productive government expenditure," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 66-77.
  2. Sarantis Kalyvitis & Eugenia Vella, 2011. "Public Capital Maintenance, Decentralization, and US Productivity Growth," Public Finance Review, , vol. 39(6), pages 784-809, November.

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