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Growth and Public Infrastructure

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  • Nigar Hashimzade

    ()
    (School of Economics, University of Reading)

  • Gareth D. Myles

    ()
    (Department of Economics, University of Exeter)

Abstract

The paper analyzes a multi-country extension of the Barro model of productive public expenditure. In the presence of infrastructural externalities between countries the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supra-national body, such as the EU, to coordinate the policies of the individual governments. It is shown how the supranational body can ensure the efficient level of infrastructure provision and, as a result, obtain an increased rate of growth. The results of the paper also show how capital flows between countries act to equalize growth rates. This can help explain why there is limited empirical evidence for tax rates causing a difference in growth rates between countries. This is not the same as saying taxation does not affect growth: if production requires public infrastructure then taxation is needed for growth. The flow of capital acts to distribute the benefit of this across countries.

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Bibliographic Info

Paper provided by Henley Business School, Reading University in its series Economics & Management Discussion Papers with number em-dp2009-03.

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Length: 35 pages
Date of creation: 19 Jan 2009
Date of revision:
Handle: RePEc:rdg:emxxdp:em-dp2009-03

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References

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  1. Assaf Razin & Chi-Wa Yuen, 1995. "Factor Mobility and Income Growth: Two Convergence Hypotheses," NBER Working Papers 5135, National Bureau of Economic Research, Inc.
  2. Stephen Turnovsky, 1998. "Productive Government Expenditure in a Stochastically Growing Economy," Discussion Papers in Economics at the University of Washington 0056, Department of Economics at the University of Washington.
  3. Jan K. Brueckner, 2005. "Fiscal Federalism and Economic Growth," CESifo Working Paper Series 1601, CESifo Group Munich.
  4. Nigar Hashimzade & Gareth D. Myles, 2009. "Growth and Public Infrastructure," Economics & Management Discussion Papers em-dp2009-03, Henley Business School, Reading University.
  5. Boadway,Robin & Shah,Anwar, 2009. "Fiscal Federalism," Cambridge Books, Cambridge University Press, number 9780521732116, April.
  6. Andreas Irmen & Johanna Kuehnel, 2008. "Productive Government Expenditure and Economic Growth," CESifo Working Paper Series 2314, CESifo Group Munich.
  7. Marcelo Bianconi & Stephen J. Turnovsky, 1997. "International Effects of Government Expenditure in Interdependent Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 57-84, February.
  8. G Mez, Manuel A., 2004. "Optimal Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 8(04), pages 419-435, September.
  9. Stephen Turnovsky, 2000. "The Transitional Dynamics of Fiscal Policy: Long-run Capital Accumulation and Growth," Working Papers 0018, University of Washington, Department of Economics.
  10. Jhy-hwa Chen & Jhy-yuan Shieh & Ching-chong Lai & Juin-jen Chang, 2005. "Productive public expenditure and imperfect competition with endogenous price markup," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 522-544, July.
  11. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
  12. 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.
  13. Yasushi Iwamoto & Akihisa Shibata, 2008. "International and Intergenerational Aspects of Capital Income Taxation in an Endogenously Growing World Economy," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 383-399, 05.
  14. Tsoukis, Chris & Miller, Nigel J., 2003. "Public services and endogenous growth," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 297-307, April.
  15. Marrero, Gustavo A., 2008. "Revisiting The Optimal Stationary Public Investment Policy In Endogenous Growth Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 12(02), pages 172-194, April.
  16. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 367-86, July.
  17. Becker, Daniel Thomas & Rauscher, Michael, 2007. "Fiscal competition in space and time: An endogenous-growth approach," Thuenen-Series of Applied Economic Theory 74, University of Rostock, Institute of Economics.
  18. Michael Rauscher, 2005. "Economic Growth and Tax-Competing Leviathans," International Tax and Public Finance, Springer, vol. 12(4), pages 457-474, August.
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Cited by:
  1. Oliviero A. Carboni & Paolo Russu, 2013. "A Model of Economic Growth with Public Finance: Dynamics and Analytic Solution," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 1-13.
  2. Nigar Hashimzade & Gareth D. Myles, 2009. "Growth and Public Infrastructure," Economics & Management Discussion Papers em-dp2009-03, Henley Business School, Reading University.

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