Public Infrastructure, non Cooperative Investments and Endogenous Growth
This paper develops a two-country general equilibrium model with endogenous growth where governments behave strategically in the provision of productive infrastructure. The public capitals enter both national and foreign production as an external input, and they are nanced by a at tax on income. In the private sector, fi rms and households take the public policy as given when making their decisions. For arbitrary constant tax rates, the dynamic analysis reveals two important features. Firstly, under constant returns, the two countries growth rates differ during the transition but are identical on the balanced growth path. Secondly, due to the infrastructure externality, assuming away constant returns to scale a country with decreasing returns can experience sustained growth provided that the other grows at a positive constant rate. Then we endogeneize tax rates. It is shown that both a Markov Perfect Equilibrium (MPE) and a Centralized Solution (CS) exist, even when the parameters allow for endogenous growth, therefore explosive paths for the state variables. Nash growth rates are compared with the centralized rates. We show that cooperation in infrastructure provision does not necessarily lead to higher growth for each country. We also show that, in some con gurations of households' preferences and initial conditions, cooperation would call for a slowdown in the initial stages of development, whereas strategic investments would not. Lastly, depending also on the con guration of preferences, we show that cooperation can increase or decrease the gap between countries' growth rates.
|Date of creation:||Mar 2012|
|Date of revision:||Mar 2012|
|Contact details of provider:|| Postal: Avenue Raymond Dugrand, CS 79606, 34960 Montpellier Cedex 2|
Web page: http://www.lameta.univ-montp1.fr/
More information through EDIRC
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.:
- Datta, Manjira & Mirman, Leonard J, 2000.
"Dynamic Externalities and Policy Coordination,"
Review of International Economics,
Wiley Blackwell, vol. 8(1), pages 44-59, February.
- Manjira Datta & Leonard Mirman, "undated". "Dynamic Externalities and Policy Coordination," Working Papers 2132841, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Manjira Datta & Leonard J. Mirman, "undated". "Dynamic Externalities and Policy Coordination," Working Papers 97/11, Arizona State University, Department of Economics.
- Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
- David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
- Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-1196, September.
- Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
When requesting a correction, please mention this item's handle: RePEc:lam:wpaper:12-07. 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: (Patricia Modat)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.