Size and composition of public investment, structural change and growth

Giulia Felice ()

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: This paper develops an endogenous growth model with two private sectors, where the government provides, as pure public goods, both infrastructure investment, directly affecting the productivity of private capital in the `modern' sector, and a flow of intermediate goods, enhancing the productivity of the otherwise `labour intensive' sector. This economy displays perpetual growth whenever the share of public expenditure on intermediate goods is higher than that on infrastructure. Government productive expenditure affects the long-run growth rate both directly, through its size and composition, and indirectly, through `structural change', that is, its effect on sectoral employment composition. We study numerically the transition along which the structural adjustments take place. We single out the growth maximizing tax rate and public expenditure composition, which both depend on the effect of government intervention on the two sectors' employment shares

Keywords: Public Investment; Growth; Structural Change (search for similar items in EconPapers)
JEL-codes: H5 O14 O41 P20 (search for similar items in EconPapers)
Date: 2009-10-22, Revised 2011-12-27
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mil:wpdepa:2009-28

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