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Growth, Congestion of Public Goods, and Second-Best Optimal Policy: A Dynamic Analysis

Romano Piras ()

Rivista italiana degli economisti, 2005, issue 3, 397-416

Abstract: This paper presents a general equilibrium endogenous growth model in which public spending is divided between public productive services and public consumption. A distinguishing feature of the model is the assumption that both components of public spending can be overused and, thus, congested by the private agents. We study the second-best dynamics of the model and prove that it is determinate. In addition, we show that, although there could be different outcomes for the second-best problem, the optimal second-best policy is unique. Finally, the relationship between congestion and the optimal second-best policy, on the one hand, and congestion and the equilibrium growth rate, on the other, is established.

Keywords: Endogenous growth; congestion; public spending; second-best. (search for similar items in EconPapers)
Date: 2005
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Handle: RePEc:mul:jqat1f:doi:10.1427/22134:y:2005:i:3:p:397-416