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Delays in Public Goods

Listed author(s):
  • 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)

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.

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File URL: http://www.otago.ac.nz/economics/otago634418.pdf
File Function: First version, 2017
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Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1702.

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Length: 31 pages
Date of creation: Feb 2017
Date of revision: Feb 2017
Handle: RePEc:otg:wpaper:1702
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Web page: http://www.business.otago.ac.nz/econ
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