Public Investment Criteria in Overlapping Generations Models of Open Economies
AbstractThis paper derives criteria for worthwhile public investment in an overlapping generations model of an “almost small” open economy- an economy with access to external funding at a given interest rate, but with some influence over its temporal terms of trade. If the economy is dynamically efficient (i.e. the interest rate exceeds the growth rate), committed to free trade, public investment is debt financed and lump sum taxes are feasible, two results follow. First, the “social opportunity cost of public funds” will exceed the government's borrowing rate because of the adverse effect of government borrowing on the terms of trade. Second, the marginal rate of return on worthwhile public investment will be greater than the social opportunity cost of public funds if public and private investment are complements (substitutes) and the tax on capital is below (above) the rate that minimizes the steady state burden of servicing the debt. Copyright Springer Science + Business Media, Inc. 2006
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal International Tax and Public Finance.
Volume (Year): 13 (2006)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=102915
public investment criteria; open economies;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sandmo, Agnar & Dreze, Jacques H, 1971. "Discount Rates for Public Investment in Closed and Open Economies," Economica, London School of Economics and Political Science, vol. 38(152), pages 395-412, November.
- David F. Burgess, 1996. "Fiscal Deficits and Intergenerational Welfare in Almost Small Open Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 885-909, November.
- Pestieau, P. M., 1974. "Optimal taxation and discount rate for public investment in a growth setting," Journal of Public Economics, Elsevier, vol. 3(3), pages 217-235, August.
- Torsten Persson, 1983.
"Deficits and Intergenerational Welfare in Open Economies,"
NBER Working Papers
1083, National Bureau of Economic Research, Inc.
- Persson, Torsten, 1985. "Deficits and intergenerational welfare in open economies," Journal of International Economics, Elsevier, vol. 19(1-2), pages 67-84, August.
- Burgess, David F., 1974. "Production theory and the derived demand for imports," Journal of International Economics, Elsevier, vol. 4(2), pages 103-117, May.
- Sjaastad, Larry A & Wisecarver, Daniel L, 1977. "The Social Cost of Public Finance," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 513-47, June.
- Elie Appelbaum & Ulrich R. Kohli, 1979. "Canada-United States Trade: Tests for the Small-Open-Economy Hypothesis," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 1-14, February.
- Buiter, Willem H, 1981.
"Time Preference and International Lending and Borrowing in an Overlapping-Generations Model,"
Journal of Political Economy,
University of Chicago Press, vol. 89(4), pages 769-97, August.
- Willem H. Buiter, 1979. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," NBER Working Papers 0352, National Bureau of Economic Research, Inc.
- Lind, Robert C., 1990. "Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S8-S28, March.
- Burgess, David F, 1988. "Complementarity and the Discount Rate for Public Investment," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 527-41, August.
- Lawrence H. Goulder & John B. Shoven & John Whalley, 1983. "Domestic Tax Policy and the Foreign Sector: The Importance of Alternative Foreign Sector Formulations to Results from a General Equilibrium Tax Analysis Model," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 333-368 National Bureau of Economic Research, Inc.
- Ogura, Seiritsu & Yohe, Gary, 1977. "The Complementarity of Public and Private Capital and the Optimal Rate of Return to Government Investment," The Quarterly Journal of Economics, MIT Press, vol. 91(4), pages 651-62, November.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Yakita, Akira, 1994. "Public investment criterion with distorted capital markets in an overlapping generations economy," Journal of Macroeconomics, Elsevier, vol. 16(4), pages 715-728.
- Yoshida, Masatoshi, 1986. "Public Investment Criterion in an Overlapping Generations Economy," Economica, London School of Economics and Political Science, vol. 53(210), pages 247-63, May.
- Claude Montmarquette & Iain Scott, 2007. "Taux d’actualisation pour l’évaluation des investissements publics au Québec," CIRANO Project Reports 2007rp-02, CIRANO.
- Xiaofeng Fan & Akira Yakita, 2011. "Brain drain and technological relationship between skilled and unskilled labor: brain gain or brain loss?," Journal of Population Economics, Springer, vol. 24(4), pages 1359-1368, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.