How should the government allocate its tax revenues between productivity-enhancing and utility-enhancing public goods?

George Economides (), Hyun Park and Apostolis Philippopoulos ()

Working Papers from Department of Economics, University of Glasgow

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

Keywords: Second-best optimal policy; Congested public goods; Growth (search for similar items in EconPapers)
JEL-codes: H2 H4 D9 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-pbe
Date: 2007-09
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Persistent link: http://EconPapers.repec.org/RePEc:gla:glaewp:2007_40

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