Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-06T12:11:43.475Z Has data issue: false hasContentIssue false

HOW SHOULD THE GOVERNMENT ALLOCATE ITS TAX REVENUES BETWEEN PRODUCTIVITY-ENHANCING AND UTILITY-ENHANCING PUBLIC GOODS?

Published online by Cambridge University Press:  22 March 2010

George Economides
Affiliation:
Athens University of Economics and Business
Hyun Park
Affiliation:
Kyung Hee University
Apostolis Philippopoulos*
Affiliation:
Athens University of Economics and Business University of Glasgow and CESifo
*
Address correspondence to: Apostolis Philippopoulos, Department of Economics, Athens University of Economics and Business, 76 Patission Street, Athens 10434, Greece; e-mail: [email protected].

Abstract

We present a fairly standard general equilibrium model of endogenous growth with productive and nonproductive public goods and services. The former enhance private productivity and the latter private utility. We study Ramsey second-best optimal policy, where the latter is summarized by the paths of the income tax rate and the allocation of collected tax revenues between productivity-enhancing and utility-enhancing public expenditures. We show that the properties and macroeconomic implications of the second-best optimal policy (a) are different from the benchmark case of the social planner's first-best allocation and (b) depend crucially on whether public goods and services are subject to congestion.

Type
Articles
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Atkinson, A. and Stiglitz, J. (1980) Lectures on Public Economics. London: McGraw-Hill.Google Scholar
Baier, S. and Glomm, G. (2001) Long-run growth and welfare effects of public policies with distortionary taxation. Journal of Economic Dynamics and Control 25, 20072042.CrossRefGoogle Scholar
Barro, R. (1990) Government spending in a simple model of endogenous growth. Journal of Political Economy 98, S103S125.CrossRefGoogle Scholar
Barro, R. and Sala-i-Martin, X. (1992) Public finance in models of economic growth. Review of Economic Studies 59, 645661.CrossRefGoogle Scholar
Barro, R. and Sala-i-Martin, X. (2004) Economic Growth, 2nd ed.New York: McGraw-Hill.Google Scholar
Chatterjee, S. and Ghosh, S. (2009) Public Goods, Congestion and Fiscal Policy: Do Consumption-Based Instruments Matter? Working paper available at SSRN: http://ssrn.com/abstract=930440.Google Scholar
Devarajan, S., Swaroop, V., and Zou, H. (1996) The composition of public expenditure and economic growth. Journal of Monetary Economics 37, 313344.CrossRefGoogle Scholar
Economides, G. and Philippopoulos, A. (2008) Growth enhancing policy is the means to sustain the environment. Review of Economic Dynamics 11, 207219.CrossRefGoogle Scholar
Eicher, T. and Turnovsky, S. (2000) Scale, congestion and growth. Economica 67, 325346.CrossRefGoogle Scholar
Fisher, W. and Turnovsky, S. (1998) Public investment, congestion and private capital accumulation. Economic Journal 108, 399413.CrossRefGoogle Scholar
Futagami, K., Morita, Y., and Shibata, A. (1993) Dynamic analysis of an endogenous growth model with public capital. Scandinavian Journal of Economics 95, 607625.CrossRefGoogle Scholar
Ghosh, S. and Gregoriou, A. (2008) The composition of government spending and growth: Is current or capital spending better? Oxford Economic Papers 60, 484516.CrossRefGoogle Scholar
Glomm, G. and Ravikumar, B. (1994) Productive government expenditures and long-run growth. Journal of Economic Dynamics and Control 21, 183204.CrossRefGoogle Scholar
Jones, C. (1995) Growth: With or without scale effects. Journal of Political Economy 89, 139144.Google Scholar
Kneller, R., Bleaney, M., and Gemmell, N. (1999) Fiscal policy and growth: Evidence from OECD countries. Journal of Public Economics 74, 171190.CrossRefGoogle Scholar
Malley, J., Philippopoulos, A., and Woitek, U. (2007) Electoral uncertainty, fiscal policy and macroeconomic fluctuations. Journal of Economic Dynamics and Control 31, 10511080.CrossRefGoogle Scholar
Ott, I. and Turnovsky, S. (2006) Excludable and non-excludable public inputs: Consequences for economic growth. Economica 73, 725748.CrossRefGoogle Scholar
Park, H. and Philippopoulos, A. (2003) On the dynamics of growth and fiscal policy with redistributive transfers. Journal of Public Economics 87, 515538.CrossRefGoogle Scholar
Park, H. and Philippopoulos, A. (2004) Indeterminacy and fiscal policies in a growing economy. Journal of Economic Dynamics and Control 28, 645660.CrossRefGoogle Scholar
Turnovsky, S. (1996) Optimal tax, debt and expenditure policies in a growing economy. Journal of Public Economics 60, 2144.CrossRefGoogle Scholar
Turnovsky, S. (2000) Methods of Macroeconomic Dynamics, 2nd ed.Cambridge, MA: The MIT Press.Google Scholar
Turnovsky, S. and Fisher, W. (1995) The composition of government expenditure and its consequences for macroeconomic performance. Journal of Economic Dynamics and Control 19, 747786.CrossRefGoogle Scholar
Young, A. (1998) Growth without scale effects. Journal of Political Economy 106, 4163.CrossRefGoogle Scholar