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On the Growth-Maximizing Allocation of Public Investment

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  • Pantelis Kalaitzidakis

    ()
    (Dept of Economics, University of Crete, Greece)

  • Vangelis Tzouvelekas

    ()
    (Department of Economics, University of Crete, Greece)

Abstract

In 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 Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 1008.

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Date of creation: 01 Jul 2010
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Handle: RePEc:crt:wpaper:1008

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