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Public Investment Policy, Distribution, and Growth: What Levels of Redistribution through Public Investment Maximize Growth?

  • Yoseph Yilma Getachew

This paper studies the distributional and the growth effects of public investment in a simple growth model with incomplete market where both growth and inequality are endogenously determined. Taxation lowers growth through distorting private investment, whereas public investment stimulates long run growth. Higher inequality corresponds to lower growth when the credit and insurance markets are missing as these prevent the efficient amount of investment to be undertaken in the economy. In this case, public investment may have additional efficiency benefit through substituting for the missing markets. It serves as means to relax resource constraints that impede certain investment. The efficiency effect of complementary public investment, on the other hand, is compromised as it aggravates it.

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File URL: http://degit.sam.sdu.dk/papers/degit_16/c016_072.pdf
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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c016_072.

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Length: 33 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:deg:conpap:c016_072
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  1. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  2. Kamps, Christophe, 2005. "Is there a lack of public capital in the European Union?," EIB Papers 3/2005, European Investment Bank, Economics Department.
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  6. Andreas Irmen & Rainer Klump, 2007. "Factor Substitution, Income Distribution, and Growth in a Generalized Neoclassical Model," Working Papers 0453, University of Heidelberg, Department of Economics, revised Oct 2007.
  7. Aghion, Philippe & Caroli, Eve & Garcia-Penalosa, Cecilia, 1999. "Inequality and economic growth: the perspective of the new growth theories," CEPREMAP Working Papers (Couverture Orange) 9908, CEPREMAP.
  8. Saint-Paul, G. & Verdier, T., 1991. "Education, Democracy and growth," DELTA Working Papers 91-27, DELTA (Ecole normale supérieure).
  9. Claude Diebolt & Faustine Perrin, 2014. "Growth Theories," Working Papers 02-14, Association Française de Cliométrie (AFC).
  10. Zhang, Jie, 1996. " Optimal Public Investments in Education and Endogenous Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 387-404.
  11. Nigel James Miller & Christopher Tsoukis, 2001. "On the optimality of public capital for long-run economic growth: evidence from panel data," Applied Economics, Taylor & Francis Journals, vol. 33(9), pages 1117-1129.
  12. Irmen, Andreas, 2010. "Steady-State Growth and the Elasticity of Substitution," Working Papers 0496, University of Heidelberg, Department of Economics.
  13. 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.
  14. repec:cup:cbooks:9780521001151 is not listed on IDEAS
  15. Pirttila, Jukka & Tuomala, Matti, 2002. " Publicly Provided Private Goods and Redistribution: A General Equilibrium Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 173-88.
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