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Public Investment, Congestion, and Private Capital Accumulation

Walter Fisher and Stephen J Turnovsky ()

Economic Journal, 1998, vol. 108, issue 447, 399-413

Abstract: This paper analyzes the impact of public investment on the dynamics of private capital formation in an intertemporal optimizing market-clearing framework. The key feature characterizing the analysis is that the public good is treated as a durable capital good subject to congestion. The authors show how, in the presence of congestion, the effect of government investment on private capital formation involves a trade-off between the degree of substitution between private and public capital in production and the degree of congestion. Both lump-sum and distortionary tax financing are considered, with this trade-off being tightened in the latter case.

Date: 1998
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