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Growth strategies: Fiscal versus institutional policies

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  • Ott, Ingrid
  • Soretz, Susanne

Abstract

This paper analyzes the growth impact of fiscal and institutional policies for alternative sizes of regions. The local government provides a public input that may be subject to relative congestion thus reducing its individual availability. Then private capital productivity is affected by the number of firms utilizing the governmental input. Institutional policies include the decision about the type of public input while fiscal policies decide on its extent. Private capital accumulation incurs adjustment costs that depend upon the ratio between private and public investment. After deriving the decentralized equilibrium, fiscal and institutional policies as well as their interdependencies and welfare implications are discussed. Due to the feedback effects both policies may not be determined independently. It is shown that depending on the region's size a certain type of the public input maximizes growth.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 25 (2008)
Issue (Month): 4 (July)
Pages: 605-622

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Handle: RePEc:eee:ecmode:v:25:y:2008:i:4:p:605-622

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Web page: http://www.elsevier.com/locate/inca/30411

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  1. Turnovsky, Stephen J, 1996. "Fiscal Policy, Adjustment Costs, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 48(3), pages 361-81, July.
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  12. Aghion, Philippe & Howitt, Peter, 2005. "Growth with Quality-Improving Innovations: An Integrated Framework," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 2, pages 67-110 Elsevier.
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  19. repec:fth:iniesr:430 is not listed on IDEAS
  20. 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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