How sensitive is the provision of public inputs to specifications?
This paper studies the sensitivity of provision of public inputs to changes in the specification of technology and consumer preferences. We consider a simple model in which the government, with recourse to three different tax settings (a lump-sum tax, a tax on labour and a tax on economic profit), provides firms with certain productive services. We focus on the numerical results coming from the government optimization problem. We look at several specific cases in which the returns to scale in the production function emerges as a critical issue. Our …findings also address the impact of changes in output elasticity, in consumer preferences and in the number of households on the levels of public input and utility.
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