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Public investment, economic growth, and wealth distribution

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  • Tamai, Toshiki

Abstract

This paper analyzes the effects of public investment on economic growth and wealth distribution in an endogenous growth model with perpetual-youth overlapping generations and idiosyncratic investment risks. Accidental bequests by sudden death and investment risks lead to a widespread wealth distribution with long tails, leading to wealth inequality. Public investment enhances economic growth by increasing the net marginal productivity of private capital. In contrast, excessive investment impedes growth by disturbing private investment due to decreased net marginal productivity. Moreover, public investment reduces wealth inequality by decreasing investment risks through a reallocation from risky to risk-free assets. These growth and distributional effects generate an inverted U-shaped relationship between economic growth and wealth inequality.

Suggested Citation

  • Tamai, Toshiki, 2026. "Public investment, economic growth, and wealth distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 184(C).
    • Handle: RePEc:eee:dyncon:v:184:y:2026:i:c:s0165188926000266
    DOI: 10.1016/j.jedc.2026.105280
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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