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How Should The Government Allocate Its Tax Revenues Between Productivity-Enhancing And Utility-Enhancing Public Goods?

  • Economides, George
  • Park, Hyun
  • Philippopoulos, Apostolis

We present a fairly standard general equilibrium model of endogenous growth with productive and nonproductive public goods and services. The former enhance private productivity and the latter private utility. We study Ramsey second-best optimal policy, where the latter is summarized by the paths of the income tax rate and the allocation of collected tax revenues between productivity-enhancing and utility-enhancing public expenditures. We show that the properties and macroeconomic implications of the second-best optimal policy (a) are different from the benchmark case of the social planner's first-best allocation and (b) depend crucially on whether public goods and services are subject to congestion.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 15 (2011)
Issue (Month): 03 (June)
Pages: 336-364

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Handle: RePEc:cup:macdyn:v:15:y:2011:i:03:p:336-364_00
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  1. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March.
  2. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
  3. George Economides & Apostolis Philippopoulos, 2008. "Growth enhancing policy is the means to sustain the environment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 207-219, January.
  4. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
  5. Eicher, Theo & Turnovsky, Stephen J, 2000. "Scale, Congestion and Growth," Economica, London School of Economics and Political Science, vol. 67(267), pages 325-46, August.
  6. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  7. Park, Hyun & Philippopoulos, Apostolis, 2004. "Indeterminacy and fiscal policies in a growing economy," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 645-660, January.
  8. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  9. Ott Ingrid & Stephen Turnovsky, 2005. "Excludable and Non-excludable Public Inputs: Consequences for Economic Growth," Working Papers UWEC-2006-02-P, University of Washington, Department of Economics, revised Jun 2005.
  10. Malley, Jim & Philippopoulos, Apostolis & Woitek, Ulrich, 2007. "Electoral uncertainty, fiscal policy and macroeconomic fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 1051-1080, March.
  11. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
  12. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
  13. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
  14. Fisher, Walter H & Turnovsky, Stephen J, 1998. "Public Investment, Congestion, and Private Capital Accumulation," Economic Journal, Royal Economic Society, vol. 108(447), pages 399-413, March.
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