Public Finance in Models of Economic Growth
The recent literature on endogenous economic growth allows for the effects of fiscal policy on long-term growth. If the social rate of return on investment exceeds the private return, tax policies that encourage investment can raise the growth rate and levels of utility. An excess of the social return over the private return can reflect learning-by-doing with spillover effects, the financing of government consumption purchases with an income tax, and monopoly pricing of new types of capital goods. Tax incentives for investment are not called for if the private rate of return on investment equals the social return. This situation applies in growth models if the accumulation of a broad concept of capital does not entail diminishing returns, or if technological progress appears as an expanding variety of consumer products. In growth models that incorporate public services, the optimal tax policy hinges on the characteristics of the services. If the public services are publicly-provided private goods, that are rival and excludable, or publicly-provided public goods, that are non-rival and non-excludable, lump-sum taxation is superior to income taxation. Many types of public goods are subject to congestion, however, and are therefore rival but to some extent non-excludable. In these cases, income taxation works approximately as a user fee and can therefore be superior to lump-sum taxation. In particular, the incentives for investment and growth are too high if taxes are lump sum. We argue that the congestion model applies to a wide array of public expenditures, including transportation facilities, public utilities, courts and possibly national defence and the police.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Mar 1992|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Barro, 1991.
"Economic Growth in a Cross Section of Countries,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 106(2), pages 407-443.
- Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
- Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
- Grossman, G.M. & Helpman, E., 1988.
"Comparative Advantage And Long-Run Growth,"
39-88, Tel Aviv.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
- King, R.G. & Rebelo, S.T., 1989.
"Transitional Dynamics And Economic Growth In The Neoclassical Model,"
RCER Working Papers
206, University of Rochester - Center for Economic Research (RCER).
- King, Robert G & Rebelo, Sergio T, 1993. "Transitional Dynamics and Economic Growth in the Neoclassical Model," American Economic Review, American Economic Association, vol. 83(4), pages 908-931, September.
- Robert G. King & Sergio T. Rebelo, 1989. "Transitional Dynamics and Economic Growth in the Neoclassical Model," NBER Working Papers 3185, National Bureau of Economic Research, Inc.
- Rebelo, Sergio, 1991.
"Long-Run Policy Analysis and Long-Run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 500-521, June.
- Romer, Paul M, 1986.
"Increasing Returns and Long-run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 94(5), pages 1002-1037, October.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Thompson, Earl A, 1974. "Taxation and National Defense," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 755-782, July/Aug..
- Abel, Andrew B & Blanchard, Olivier J, 1983.
"An Intertemporal Model of Saving and Investment,"
Econometric Society, vol. 51(3), pages 675-692, May.
- Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-585, May.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:630. 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: ()
If references are entirely missing, you can add them using this form.