Should the Private Sector Provide Public Capital?
AbstractThe choice between private and government provision of a productive public good like infrastructure (public capital) is examined in the context of an endogenously growing open economy. The accumulation of public capital need not require government provision, in contrast to the standard assumption in the literature. Even with an efficient government, the relative costs and benefits of government and private provision depend crucially on the economyâ€™s underlying structural conditions, borrowing constraints in international capital markets, and installation costs. Countries with limited substitution possibilities and large production externalities may benefit from governments encouraging private provision of public capital through targeted investment subsidies. On the other hand, countries with flexible substitution possibilities and relatively smaller externalities may benefit either from governments directly providing public capital, or from regulation of private providers. The transitional dynamics are also shown to depend on the underlying elasticity of substitution and the size of the production externality
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 92.
Date of creation: 04 Jul 2006
Date of revision:
Public Capital; Private Provision; Infrastructure Provision; Subsidies; Distortionary Taxation;
Other versions of this item:
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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- Chatterjee, Santanu & Mahbub Morshed, A.K.M., 2011. "Reprint to: Infrastructure provision and macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1405-1423, September.
- Mihaela Pintea & Stephen Turnovsky, 2006. "Congestion and Fiscal Policy in a Two-Sector Economy with Public Capital: A Quantitative Assessment," Computational Economics, Society for Computational Economics, vol. 28(2), pages 177-209, September.
- Chatterjee, Santanu & Mahbub Morshed, A.K.M., 2011. "Infrastructure provision and macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1288-1306, August.
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