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Congestible Public Goods and Indeterminacy in a Two-sector Endogenous Growth Model

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Abstract

This paper develops a new mechanism for local indeterminacy in a constant-return, two-sector, human capital enhanced growth model, with productive public spending financed by the income taxation in the goods sector. The use of productive public goods services is subject to an external congestion effect in association with the quantity of aggregate physical as well as human capital used in the economy. We establish local indeterminate equilibrium paths driven by the congestion effect. The possibility of local indeterminacy emerges because under constant returns, the congestion effect reduces the marginal contribution of public goods services and increases the marginal contribution of physical as well as human capital, thereby making the social marginal products to deviate from those of the firm’s perspective.

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Bibliographic Info

Paper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 05-A003.

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Length: 25 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:sin:wpaper:05-a003

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Keywords: two-sector model; indeterminacy; congestion;

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References

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  1. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers, UCLA Department of Economics 646, UCLA Department of Economics.
  2. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
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  8. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics," Research Paper, Federal Reserve Bank of Dallas 9324, Federal Reserve Bank of Dallas.
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  10. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(1), pages 113-142, June.
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  13. Xie Danyang, 1994. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(1), pages 97-112, June.
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  16. Mino, Kazuo, 2001. "Indeterminacy and Endogenous Growth with Social Constant Returns," Journal of Economic Theory, Elsevier, Elsevier, vol. 97(1), pages 203-222, March.
  17. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 21(1), pages 183-204, January.
  18. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, Elsevier, vol. 60(1), pages 21-44, April.
  19. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
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Cited by:
  1. Chen, Been-Lon & Lee, Shun-Fa, 2008. "Corrigendum to "Congestible public goods and local indeterminacy: A two-sector endogenous growth model": [Journal of Economic Dynamics & Control 31 (7) (2007) 2486-2518]," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(4), pages 1356-1356, April.

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