On the Growth-Maximizing Allocation of Public Investment
AbstractIn this paper we present an endogenous growth model to analyze the growth maximizing allocation of public investment among N different types of public capital. Using this general model of public capital formation, we analyze the stability of the long-run equilibrium and we derive the growth-maximizing values of the shares of public investment allocated to the different types of public capital, as well as the growth-maximizing tax rate (amount of total public investment as a share of GDP). The empirical implication of the modelis that both the effects of the shares of public investment and the tax rate on the long-run growth rate are non-linear, following an inverse U-shaped pattern.
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Bibliographic InfoPaper provided by University of Crete, Department of Economics in its series Working Papers with number 1008.
Date of creation: 01 Jul 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-DGE-2010-07-10 (Dynamic General Equilibrium)
- NEP-FDG-2010-07-10 (Financial Development & Growth)
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