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The inefficiency of firm-augmenting public input vs. The inapplicability of provision rules

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  • Carsten Colombier

    (Swiss Federal Finance Administration, Bern)

Abstract

This paper contributes to the debate about the appropriate efficiency rule for the provision of a firm-augmenting public input. This debate is caused by the dissatisfaction of Kaizuka-rule, i.e. a Samuelson-type condition for public inputs, in the long run. Therefore the applicability of Kaizuka-rule has been questioned. By developing an alternative efficiency rule this paper shows that firm-augmenting public input cannot be provided efficiently. The latter is due to the goods’ properties of firm-augmenting public input along with the assumption of firm-augmenting public input as an intermediate good a long term efficient equilibrium is excluded a priori. Consequently firm- augementing public input is unsuited for depicting public intermediate goods in economic models. Thus models, which use firm-augmenting public input, such as that of fiscal competition and of endogenous growth, should be reconsidered.

Suggested Citation

  • Carsten Colombier, 2004. "The inefficiency of firm-augmenting public input vs. The inapplicability of provision rules," Public Economics 0410003, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0410003
    Note: Type of Document - pdf; pages: 20. pdf document with 20 pages
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/pe/papers/0410/0410003.pdf
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    References listed on IDEAS

    as
    1. Hillman, Arye L, 1978. "Symmetries and Asymmetries between Public Input and Public Good Equilibria," Public Finance = Finances publiques, , vol. 33(3), pages 269-279.
    2. Matsumoto, Mutsumi, 2000. "A Tax Competition Analysis of Congestible Public Inputs," Journal of Urban Economics, Elsevier, vol. 48(2), pages 242-259, September.
    3. James Feehan, 1998. "Optimal Provision of Hicksian Public Inputs," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 693-707, August.
    4. Robert J. Barro & Xavier Sala-I-Martin, 1992. "Public Finance in Models of Economic Growth," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 645-661.
    5. Feehan, James P, 1989. "Pareto-Efficiency with Three Varieties of Public Input," Public Finance = Finances publiques, , vol. 44(2), pages 237-248.
    6. Richter, Wolfram F., 1994. "The efficient allocation of local public factors in Tiebout's tradition," Regional Science and Urban Economics, Elsevier, vol. 24(3), pages 323-340, June.
    7. Henderson, J V, 1974. "A Note on the Economics of Public Intermediate Inputs," Economica, London School of Economics and Political Science, vol. 41(163), pages 322-327, August.
    8. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
    9. McMillan, John, 1979. "A Note on the Economics of Public Intermediate Goods," Public Finance = Finances publiques, , vol. 34(2), pages 293-299.
    10. Boadway, Robin W, 1973. "Similarities and Differences between Public Goods and Public Factors," Public Finance = Finances publiques, , vol. 28(3-4), pages 245-258.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    firm-augmenting public input; Kaizuka-rule; social surplus;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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