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Fiscal policy, long-run growth, and welfare in a stock-flow model of public goods

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  • Sugata Ghosh
  • Udayan Roy

Abstract

We introduce public capital and public services as inputs in an endogenous growth model. We show that the growth rate depends on the apportionment of tax revenues between the accumulation of public capital and the provision of public services. When public spending is financed by proportional income taxes, the growth rate, the level of public spending as a proportion of GDP, the level of investment in public capital as a proportion of total public spending, and the level of private investment as a proportion of total private spending all are lower in the equilibrium outcome than in the optimal outcome.

Suggested Citation

  • Sugata Ghosh & Udayan Roy, 2004. "Fiscal policy, long-run growth, and welfare in a stock-flow model of public goods," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 742-756, August.
  • Handle: RePEc:cje:issued:v:37:y:2004:i:3:p:742-756
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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