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The Welfare Gains of Cooperative Public Infrastructure Policies: A Trade and Supply-Side View

Author

Listed:
  • Aurélien Eyquem

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Rym Aloui

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We investigate the optimal levels of public investment in infrastructure in a two-country open-economy model with production externality and distortionary taxation. In the model, transport costs fall with local and foreign stocks of public infrastructure, but more strongly with the foreign stock. We provide empirical evidence supporting this assumption, and show that it generates sizable welfare gains from international cooperation, from 0.15% in the baseline case to more than 5% of permanent consumption under alternative calibrations. We also discuss the endogenous responses of cooperative and non-cooperative levels of public investment in infrastructure to productivity shocks.
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Suggested Citation

  • Aurélien Eyquem & Rym Aloui, 2020. "The Welfare Gains of Cooperative Public Infrastructure Policies: A Trade and Supply-Side View," Post-Print hal-03230818, HAL.
    • Handle: RePEc:hal:journl:hal-03230818
    DOI: 10.15609/annaeconstat2009.140.0027
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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