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Public Capital, Growth and WelfareAnalytical Foundations for Public Policy$
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Pierre-Richard Agénor

Print publication date: 2012

Print ISBN-13: 9780691155807

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691155807.001.0001

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Basic Channels

Basic Channels

(p.11) 1 Basic Channels
Public Capital, Growth and Welfare

Pierre-Richard Agénor

Princeton University Press

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.

Keywords:   public capital, productivity, complementarity, crowding-out effects, Allais–Samuelson Overlapping Generations, indirect taxation, fiscal policy

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