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Fiscal Policy, Congestion, and Endogenous Growth

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  • MANUEL A. GÓMEZ

Abstract

We devise an endogenous growth model with private and public physical capital, and human capital, which allows for relative and absolute congestion. According to empirical evidence, long‐run growth is invariant to fiscal policy. Despite its complexity, the dynamics of the market economy and the centralized economy are analyzed in detail. We show that an increase in absolute congestion reduces the long‐run growth rate of output. In contrast, relative congestion does not affect long‐run growth. In the absence of congestion, it is optimal to use lump‐sum taxation, and with congestion it is optimal to also tax income.

Suggested Citation

  • Manuel A. Gómez, 2008. "Fiscal Policy, Congestion, and Endogenous Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 595-622, August.
  • Handle: RePEc:bla:jpbect:v:10:y:2008:i:4:p:595-622
    DOI: 10.1111/j.1467-9779.2008.00378.x
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    Cited by:

    1. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
    2. Dimitrios Paparas & Christian Richter, 2015. "Fiscal policy and economic growth: Empirical evidence from the European Union," Working Papers 2015.06, International Network for Economic Research - INFER.
    3. Zhang, W.-B., 2014. "Ethnic Human Capital Externalities and Inequality in a General Equilibrium Growth Model," Journal of the New Economic Association, New Economic Association, vol. 21(1), pages 33-54.

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