We consider a two-sector economy, where public infrastructure un- evenly affects the productivity of the sectors. Private and public capital are produced with different technologies, and the sector producing the infrastructure is not benefitting from its services. The government provides both infrastructure investment and a flow of intermediate goods, enhancing the productivity of the sector producing the infrastructure. We show that this economy displays perpetual growth whenever the share of public expenditure on intermediate goods is higher than that on infrastructure. In the long run the public capital, the private capital and the GDP grow at the same steady rate and the share of total public expenditure on GDP is constant. We study numerically the transition to the long run, along which the structural adjustments take place. We single out the conditions under whichthe tax rate is growth maximizing
A two-sector model of public investment and growth / G. Felice. - Milano : Department of Economics in Milan university, 2009 Oct.
A two-sector model of public investment and growth
G. FelicePrimo
2009
Abstract
We consider a two-sector economy, where public infrastructure un- evenly affects the productivity of the sectors. Private and public capital are produced with different technologies, and the sector producing the infrastructure is not benefitting from its services. The government provides both infrastructure investment and a flow of intermediate goods, enhancing the productivity of the sector producing the infrastructure. We show that this economy displays perpetual growth whenever the share of public expenditure on intermediate goods is higher than that on infrastructure. In the long run the public capital, the private capital and the GDP grow at the same steady rate and the share of total public expenditure on GDP is constant. We study numerically the transition to the long run, along which the structural adjustments take place. We single out the conditions under whichthe tax rate is growth maximizingPubblicazioni consigliate
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