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Size and composition of public investment, structural change and growth

  • Giulia FELICE

    ()

This paper develops an endogenous growth model with two private sectors, where the government provides, as pure public goods, both infrastructure investment, directly affecting the productivity of private capital in the `modern' sector, and a flow of intermediate goods, enhancing the productivity of the otherwise `labour intensive' sector. This economy displays perpetual growth whenever the share of public expenditure on intermediate goods is higher than that on infrastructure. Government productive expenditure affects the long-run growth rate both directly, through its size and composition, and indirectly, through `structural change', that is, its effect on sectoral employment composition. We study numerically the transition along which the structural adjustments take place. We single out the growth maximizing tax rate and public expenditure composition, which both depend on the effect of government intervention on the two sectors' employment shares

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File URL: http://wp.demm.unimi.it/tl_files/wp/2009/DEMM2009_28BISwp.pdf
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Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2009-28.

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Date of creation: 22 Oct 2009
Date of revision: 27 Dec 2011
Handle: RePEc:mil:wpdepa:2009-28
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