Should public capital be subsidized or provided

VIP免费

2025-01-11 2 0 192.17KB 22 页 5.9玖币

侵权投诉

Should Public Capital Be Subsidized or

Provided?∗

Shantayanan Devarajan†

World Bank

Danyang Xie

Hong Kong University of Science & Technology

Heng-fu Zou

World Bank

September 1997

∗We would like to thank Jess Benhabib, William Chan, Bill Easterly, Ross Levine,

Chong Yip and Shlomo Yitzhaki for useful comments.

†Mailing Address: Policy Research Department, World Bank, Room N10-049, 1818 H

St, NW, Washington, DC 20433, USA.

Abstract

In an endogenous-growth model, we consider alternative ways of providing

public capital using distortionary taxes. We show that if the government

provides the good, the resulting growth rate and welfare may or may not

be higher than under laissez-faire. By contrast, if the government subsidizes

private providers, not only are growth and welfare higher than under public

provision, they are also unambiguously higher than under laissez-faire.

1 Introduction

The early literature on endogenous-growth models (Romer 1986 and Lucas

1988) showed that, when there are stocks that generate positive externalities

(knowledge, human capital, infrastructure capital), the government can in-

crease the economy’s growth rate by intervening to internalize the externality.

This literature assumed that the government had access to lump-sum taxes to

ﬁnance the intervention. The more recent literature (Barro 1990) has looked

at situations where the government uses distortionary taxes. However, this

literature does not model the underlying rationale for public intervention.

Rather, they assume that government spending is productive by including it

as an argument in the aggregate production function.

If the reason for public intervention is an externality, the solution need

not be government provision of the good; it could be a subsidy to private

providers. The purpose of this paper is to examine alternative forms of pro-

viding these so-called “public capital” goods using distortionary taxes where

the externality associated with public capital is explicitly taken into account.

In section 2, we set up a two-capital endogenous-growth model in which type

1 capital has no externality but type 2 has a positive externality. In section

3, we analyze the laissez-faire equilibrium in a special version of the model,

deriving the long-run rate of growth of output. By laissez-faire, we mean that

all capital formation is done by private individuals and the government plays

no role. In section 4, we analyze the equilibrium under two popular kinds

of government intervention, namely (1) the government’s taking over type 2

capital formation; and (2) subsidizing private type 2 capital formation. In

section 5, we compare the welfare and growth rates of the various cases. We

show that with public provision, welfare and the growth rate of output may

or may not be higher than under laissez-faire, since the distortionary costs

of taxation may outweigh the beneﬁts of capturing the positive externality.

With the subsidy, however, not only are welfare and the growth rate higher

than with public provision (because the former requires less of the distor-

tionary tax) but it is also unambiguously higher than under laissez-faire.

Section 6 concludes.

2TheModel

Consider an economy with an inﬁnitely-lived representative agent. His pref-

erences are given by

∞

t=0

ρtu(ct),

where ρis the discount factor (0 <ρ<1) and u(ct) is increasing and concave

in ct,and satisﬁes the Inada conditions.

The per-capita production function is given by

yt=f(k1

t,k

t)e(ˆ

t),

where k1

tis type 1 capital stock in a representative ﬁrm; k2

tis type 2 capital

stock in the representative ﬁrm. The positive externality generated by type

2 capital is captured by an increasing function, e(ˆ

t),where ˆ

tis the average

of type 2 capital stock in the economy. Accumulation of the two types of

capital goods is given by

t+1 =yt+(1−δ1)k1

t−ct−zt

t+1 =zt+(1−δ2)k2

(1)

where δ1and δ2are the rates of depreciation in type 1 and type 2 capital

goods, respectively, and ztis investment in type 2 capital.

This completes the basic setup. In the next two sections, we character-

ize the benchmark case (laissez-faire) and the two scenarios outlined in the

introduction by solving some dynamic optimization problems. We will use

a special example which delivers an explicit solution and makes transparent

the comparison of long-run growth rates and welfare.

3 The Benchmark Case: Laissez-Faire

In this section, we analyze the laissez-faire equilibrium in a special version

of the model. We adopt a utility function and production function that

permit an explicit solution. Speciﬁcally, the pair consists of a log utility

and the Cobb-Douglas production function, which is a special case of the

pairs studied in Benhabib and Rustichini (1994). For pairs of utility and

production functions that allow for explicit dynamics in a continuous time

framework, see Xie (1991) and Xie (1994).

文档加载中……请稍候！
如果长时间未打开，您也可以点击刷新试试。

下载文档到电脑，查找使用更方便

5.9 玖币 0人已下载

立即下载 VIP免费下载

摘要：

ShouldPublicCapitalBeSubsidizedorProvided?∗ShantayananDevarajan†WorldBankDanyangXieHongKongUniversityofScience&TechnologyHeng-fuZouWorldBankSeptember1997∗WewouldliketothankJessBenhabib,WilliamChan,BillEasterly,RossLevine,ChongYipandShlomoYitzhakiforusefulcomments.†MailingAddress:PolicyResearchDepart...

展开>> 收起<<

Should public capital be subsidized or provided.pdf

共22页,预览5页

还剩页未读，继续阅读

声明：本站为文档C2C交易模式，即用户上传的文档直接被用户下载，本站只是中间服务平台，本站所有文档下载所得的收益归上传人(含作者)所有。玖贝云文库仅提供信息存储空间，仅对用户上传内容的表现方式做保护处理，对上载内容本身不做任何修改或编辑。若文档所含内容侵犯了您的版权或隐私，请立即通知玖贝云文库，我们立即给予删除！

Should public capital be subsidized or provided

相关推荐

开通VIP享超值会员特权

作者详情

相关内容

热门标签

举报选择: