How should the government allocate its tax revenues between productivity-enhancing and utility-enhancing public goods?
AbstractWe 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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Bibliographic InfoPaper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2007_40.
Date of creation: Sep 2007
Date of revision:
Second-best optimal policy; Congested public goods; Growth;
Other versions of this item:
- Economides, George & Park, Hyun & Philippopoulos, Apostolis, 2011. "How Should The Government Allocate Its Tax Revenues Between Productivity-Enhancing And Utility-Enhancing Public Goods?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(03), pages 336-364, June.
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H4 - Public Economics - - Publicly Provided Goods
- D9 - Microeconomics - - Intertemporal Choice
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-17 (All new papers)
- NEP-DGE-2007-11-17 (Dynamic General Equilibrium)
- NEP-PBE-2007-11-17 (Public Economics)
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