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How should the government allocate its tax revenues between productivity-enhancing and utility-enhancing public goods?

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Author Info
George Economides
Hyun Park
Apostolis Philippopoulos

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Abstract

We present a fairly standard general equilibrium model of endogenous growth with productive and non-productive public goods and servives. The former enhance private productivity and the latter private utility. We solve for Ramsey second-best optimal policy (where policy is summarized by the paths of the income tax rate and the allocation of the collected tax revenues between productivity-enhancing and utilityenhancing public expenditures). We show that the properties and implications of second-best optimal policy (a) differ from the benchmark case of the social planner’s first-best allocation (b) depend crucially on whether public goods and services are subject to congestion.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2007_40.

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Date of creation: Sep 2007
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Handle: RePEc:gla:glaewp:2007_40

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Web page: http://www.gla.ac.uk/departments/economics/

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Related research
Keywords: Second-best optimal policy Congested public goods Growth

Find related papers by JEL classification:
H2 - Public Economics - - Taxation, Subsidies, and Revenue
H4 - Public Economics - - Publicly Provided Goods
D9 - Microeconomics - - Intertemporal Choice and Growth

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November. [Downloadable!] (restricted)
  2. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May. [Downloadable!] (restricted)
  3. Ingrid Ott & Stephen Turnovsky, 2005. "Excludable and Non-Excludable Public Inputs: Consequences for Economic Growth," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  4. George Economides & Apostolis Philippopoulos, 2008. "Growth enhancing policy is the means to sustain the environment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 207-219, January. [Downloadable!] (restricted)
  5. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Blackwell Publishing, vol. 95(4), pages 607-25, December.
  7. Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2005. "Electoral Uncertainty, Fiscal Policy and Macroeconomic Fluctuations," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  9. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March. [Downloadable!] (restricted)
  10. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February. [Downloadable!] (restricted)
  11. Eicher, Theo & Turnovsky, Stephen J, 2000. "Scale, Congestion and Growth," Economica, London School of Economics and Political Science, vol. 67(267), pages 325-46, August. [Downloadable!] (restricted)
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  12. Park, Hyun & Philippopoulos, Apostolis, 2004. "Indeterminacy and fiscal policies in a growing economy," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 645-660, January. [Downloadable!] (restricted)
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