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The inefficiency of firm-augmenting public input vs. The inapplicability of provision rules

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  • Carsten Colombier

    (Swiss Federal Finance Administration, Bern)

Abstract

This paper contributes to the debate about the appropriate efficiency rule for the provision of a firm-augmenting public input. This debate is caused by the dissatisfaction of Kaizuka-rule, i.e. a Samuelson-type condition for public inputs, in the long run. Therefore the applicability of Kaizuka-rule has been questioned. By developing an alternative efficiency rule this paper shows that firm-augmenting public input cannot be provided efficiently. The latter is due to the goods’ properties of firm-augmenting public input along with the assumption of firm-augmenting public input as an intermediate good a long term efficient equilibrium is excluded a priori. Consequently firm- augementing public input is unsuited for depicting public intermediate goods in economic models. Thus models, which use firm-augmenting public input, such as that of fiscal competition and of endogenous growth, should be reconsidered.

Suggested Citation

  • Carsten Colombier, 2004. "The inefficiency of firm-augmenting public input vs. The inapplicability of provision rules," Public Economics 0410003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwppe:0410003
    Note: Type of Document - pdf; pages: 20. pdf document with 20 pages
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    firm-augmenting public input; Kaizuka-rule; social surplus;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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