IDEAS home Printed from
   My bibliography  Save this paper

Public Investment, Distributive Politics and Economic Growth


  • Francisca Guedes de Oliveira

    () (Universidade Católica Portuguesa - Porto)


This paper develops on a Solow type of model where the government is introduced as a decision maker. Additionally, this paper introduces consumer decisions and assumes that individuals can be differentiated by their relative factor endowment (labor and private capital). The results indicate that the economy’s growth rate has an inverted U-shape relationship with the tax rate on private capital. They also indicate that the tax rate has a positive relation with the amount of money government spend on consumption (rather than on investment in public capital). The paper also concludes that the choice of the tax rate will be above the optimal level and hence the potential growth rate will not be achieved. Taking the analysis further, it can be assumed that voters will try to correct lower tax rates of public investment by choosing an higher tax rate. This tax rate will be higher if society is more disparate in terms of income distribution. Finally, the conclusion from a public policy perspective is that there is a negative relationship between the chosen tax rate and public investment and that this relationship is highly sensitive to the model parameters.

Suggested Citation

  • Francisca Guedes de Oliveira, 2007. "Public Investment, Distributive Politics and Economic Growth," Working Papers de Economia (Economics Working Papers) 19, Católica Porto Business School, Universidade Católica Portuguesa.
  • Handle: RePEc:cap:wpaper:192007

    Download full text from publisher

    File URL:
    File Function: First version
    Download Restriction: no

    More about this item


    growth; income distribution; government budget; government efficiency;

    JEL classification:

    • A - General Economics and Teaching
    • H - Public Economics
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cap:wpaper:192007. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ricardo Goncalves). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.