FEEM working papers "Note di lavoro" series
2004 .005

Growth, Congestion of Public Goods, and Second-Best Optimal Policy


Authors: Romano Piras
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Endogenous growth,Congestion,Public spending,Second-Best
JEL n.: H3,H5,O4
JEL: Rivista italiana degli economisti
Pages: No. 3, pp. 397-416
Date: 12/2005

Abstract

This paper presents a general equilibrium endogenous growth model in which public spending is divided between public productive services and public consumption. A distinguishing feature of the model is the assumption that both components of public spending can be over used and, thus, congested by the private agents. We study the second-best dynamics of the model and prove that it is determinate. Moreover, we show that the optimal second-best policy could be not unique. Finally, the relationship between congestion and the optimal second-best policy, on the one hand, and congestion and the long run growth rate, on the other, is established.

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