This chapter begins by focusing on “conventional” channels through which public capital is deemed to affect growth, namely, productivity, complementarity, and crowding-out effects. It presents a basic two-period Allais–Samuelson Overlapping Generations model, which is extended in subsequent chapters to address a host of other issues. At the core of this model is a production function in which public capital is complementary to private capital. Several extensions of the basic model are then considered, including indirect taxation, a complementarity effect operating through the efficiency of private investment, an effect of public capital on household utility, and maintenance expenditure. The chapter also provides a discussion of optimal fiscal policy, which is studied from the perspective of growth maximization by a benevolent government, rather than in terms of social welfare maximization.
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