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Should Public Capital Be Subsidized or Provided?

  • Shantayanan Devarajan

    (World Bank)

  • Danyang Xie

    (HKUST)

  • Heng-Fu Zou

    (World Bank)

In an endogenous-growth model, we consider alternative ways of providing public capital using distortionary taxes. We show that if the government provides the good, the resulting growth rate and welfare may or may not be higher than under laissez-faire. By contrast, if the government subsidizes private providers, not only are growth and welfare higher than under public provision, they are also unambiguously higher than under laissez-faire. Forthcoming 1998. Journal of Monetary Economics.

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File URL: http://econwpa.repec.org/eps/mac/papers/0212/0212005.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0212005.

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Length: 22 pages
Date of creation: 11 Dec 2002
Date of revision:
Handle: RePEc:wpa:wuwpma:0212005
Note: Type of Document - PDF; prepared on PC; to print on HP; pages: 22 ; figures: none
Contact details of provider: Web page: http://econwpa.repec.org

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  1. William Easterly & Sergio Rebelo, 1993. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc.
  2. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  3. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  5. Benhabib, Jess & Rustichini, Aldo, 1994. "A note on a new class of solutions to dynamic programming problems arising in economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 807-813.
  6. Kehoe, Timothy J & Levine, David K & Romer, Paul M, 1992. "On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems," Economic Theory, Springer, vol. 2(1), pages 43-68, January.
  7. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu Zou, 1993. "What do governments buy? The composition of public spending and economic performance," Policy Research Working Paper Series 1082, The World Bank.
  8. King, R.G. & Rebelo, S., 1988. "Public Policy And Economic Growth: Developing Neoclassical Implications," RCER Working Papers 225, University of Rochester - Center for Economic Research (RCER).
  9. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  10. Xie Danyang, 1994. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," Journal of Economic Theory, Elsevier, vol. 63(1), pages 97-112, June.
  11. Glomm, Gerhard & Ravikumar, B., 1994. "Public investment in infrastructure in a simple growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1173-1187, November.
  12. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1993. "What do governments buy?," CEMA Working Papers 513, China Economics and Management Academy, Central University of Finance and Economics.
  13. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  14. Xie, Danyang, 1991. "Increasing Returns and Increasing Rates of Growth," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 429-35, April.
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