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Growth and Public Infrastructure

  • Nigar Hashimzade

    ()

    (School of Economics, University of Reading)

  • Gareth D. Myles

    ()

    (Department of Economics, University of Exeter)

The paper analyzes a multi-country extension of the Barro model of productive public expenditure. In the presence of infrastructural externalities between countries the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supra-national body, such as the EU, to coordinate the policies of the individual governments. It is shown how the supranational body can ensure the efficient level of infrastructure provision and, as a result, obtain an increased rate of growth. The results of the paper also show how capital flows between countries act to equalize growth rates. This can help explain why there is limited empirical evidence for tax rates causing a difference in growth rates between countries. This is not the same as saying taxation does not affect growth: if production requires public infrastructure then taxation is needed for growth. The flow of capital acts to distribute the benefit of this across countries.

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Paper provided by Henley Business School, Reading University in its series Economics & Management Discussion Papers with number em-dp2009-03.

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Length: 35 pages
Date of creation: 19 Jan 2009
Date of revision:
Handle: RePEc:rdg:emxxdp:em-dp2009-03
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  1. Phillip Arestis & Michelle Baddeley & John S.L. McCombie (ed.), 2007. "Economic Growth," Books, Edward Elgar, number 3958.
  2. Jhy-hwa Chen & Jhy-yuan Shieh & Ching-chong Lai & Juin-jen Chang, 2005. "Productive public expenditure and imperfect competition with endogenous price markup," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 522-544, July.
  3. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  4. Tsoukis, Chris & Miller, Nigel J., 2003. "Public services and endogenous growth," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 297-307, April.
  5. Razin, Assaf & Yuen, Chi-Wa, 1997. "Factor Mobility and Income Growth: Two Convergence Hypotheses," Review of Development Economics, Wiley Blackwell, vol. 1(2), pages 171-90, June.
  6. Turnovsky, Stephen J, 2004. "The Transitional Dynamics of Fiscal Policy: Long-Run Capital Accumulation and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 883-910, October.
  7. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
  8. Brueckner, Jan K., 2006. "Fiscal federalism and economic growth," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2107-2120, November.
  9. Yasushi Iwamoto & Akihisa Shibata, 2007. "International and Intergenerational Aspects of Capital Income Taxation in an Endogenously Growing World Economy," CIRJE F-Series CIRJE-F-490, CIRJE, Faculty of Economics, University of Tokyo.
  10. Turnovsky, Stephen J., 1999. "Productive Government Expenditure In A Stochastically Growing Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 3(04), pages 544-570, December.
  11. repec:cup:cbooks:9780521518215 is not listed on IDEAS
  12. Hashimzade, Nigar & Myles, Gareth D., 2010. "Growth And Public Infrastructure," Macroeconomic Dynamics, Cambridge University Press, vol. 14(S2), pages 258-274, November.
  13. Daniel Becker & Michael Rauscher, 2007. "Fiscal Competition in Space and Time: An Endogenous-Growth Approach," CESifo Working Paper Series 2048, CESifo Group Munich.
  14. Gustavo A. Marrero, 2005. "Revisiting the optimal stationary public investment policy in endogenous growth economies," Documentos de Trabajo del ICAE 0509, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  15. Andreas Irmen & Johanna Kuehnel, 2009. "Productive Government Expenditure And Economic Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 692-733, 09.
  16. repec:cup:cbooks:9780521732116 is not listed on IDEAS
  17. Michael Rauscher, 2005. "Economic Growth and Tax-Competing Leviathans," International Tax and Public Finance, Springer, vol. 12(4), pages 457-474, August.
  18. G Mez, Manuel A., 2004. "Optimal Fiscal Policy In A Growing Economy With Public Capital," Macroeconomic Dynamics, Cambridge University Press, vol. 8(04), pages 419-435, September.
  19. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 367-86, July.
  20. Marcelo Bianconi & Stephen J. Turnovsky, 1997. "International Effects of Government Expenditure in Interdependent Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 57-84, February.
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