Public Investment Policy, Distribution, and Growth: What Levels of Redistribution through Public Investment Maximize Growth?

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: This paper studies the distributional and the growth effects of public investment in a simple growth model with incomplete market where both growth and inequality are endogenously determined. Taxation lowers growth through distorting private investment, whereas public investment stimulates long run growth. Higher inequality corresponds to lower growth when the credit and insurance markets are missing as these prevent the efficient amount of investment to be undertaken in the economy. In this case, public investment may have additional efficiency benefit through substituting for the missing markets. It serves as means to relax resource constraints that impede certain investment. The efficiency effect of complementary public investment, on the other hand, is compromised as it aggravates it.

Keywords: Public Capital; Elasticity of Substitution; Wealth Mobility; Growth. Incomplete Market (search for similar items in EconPapers)
JEL-codes: D3 E25 H4 O11 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2011-09
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:deg:conpap:c016_072

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