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Delays in Public Goods

Author

Listed:
  • Santanu Chatterjee

    () (Department of Economics, University of Georgia, USA)

  • Olaf Posch

    () (Department of Economics, Universitat Hamburg, Germany)

  • Dennis Wesselbaum

    () (Department of Economics, University of Otago, New Zealand)

Abstract

In this paper, we analyze the consequences of delays and cost overruns typically associated with the provision of public infrastructure in the context of a growing economy. Our results indicate that uncertainty about the arrival of public capital can more than offset its positive spillovers for private-sector productivity. In a decentralized economy, unanticipated delays in the provision of public capital generate too much consumption and too little private investment relative to the first-best optimum. The characterization of the first-best optimum is also affected: facing delays in the arrival of public goods, a social planner allocates more resources to private investment and less to consumption relative to the first-best outcome in the canonical model (without delays). The presence of delays also lowers equilibrium growth, and leads to a diverging growth path relative to that implied by the canonical model. This suggests that delays in public capital provision may be a potential determinant of cross-country differences in income and economic growth.

Suggested Citation

  • Santanu Chatterjee & Olaf Posch & Dennis Wesselbaum, 2017. "Delays in Public Goods," Working Papers 1702, University of Otago, Department of Economics, revised Feb 2017.
  • Handle: RePEc:otg:wpaper:1702
    as

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    File URL: http://www.otago.ac.nz/economics/otago634418.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Public goods; delays; time overrun; cost overrun; implementation lags; fiscal policy; economic growth;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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