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Fiscal Policy and Adjustment Costs of Private Investment in an Endogenous Growth Model with Public Capital

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  • Toshiki Tamai

Abstract

This paper develops an endogenous growth model with public capital and examines the growth and welfare effects of a fiscal policy that is financed by corporate taxation. In the model, we incorporate the investment decision-making of competitive firms by considering the adjustment costs of private investment. We show that there arises an indeterminacy of the balanced growth path. Furthermore, it is demonstrated that growth-maximizing policy is not equivalent to welfare-maximizing policy on the balanced growth path.

Suggested Citation

  • Toshiki Tamai, 2006. "Fiscal Policy and Adjustment Costs of Private Investment in an Endogenous Growth Model with Public Capital," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 455-470, December.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200612)62:4_455:fpaaco_2.0.tx_2-f DOI: 10.1628/001522106X172652
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    References listed on IDEAS

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    More about this item

    Keywords

    economic growth; public capital; welfare;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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