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Delays in Public Goods

Santanu Chatterjee (), Olaf Posch () and Dennis Wesselbaum

No 6341, CESifo Working Paper Series from CESifo Group Munich

Abstract: In this paper, we analyze the consequences of delays and cost overruns typically associated with the provision of public infrastructure in the context of a growing economy. Our results indicate that uncertainty about the arrival of public capital can more than offset its positive spillovers for private-sector productivity. In a decentralized economy, unanticipated delays in the provision of public capital generate too much consumption and too little private investment relative to the first-best optimum. The characterization of the first-best optimum is also affected: facing delays in the arrival of public goods, a social planner allocates more resources to private investment and less to consumption relative to the first-best outcome in the canonical model (without delays). The presence of delays also lowers equilibrium growth, and leads to a diverging growth path relative to that implied by the canonical model. This suggests that delays in public capital provision may be a potential determinant of cross-country differences in income and economic growth.

Keywords: public goods; delays; time overrun; cost overrun; implementation lags; fiscal policy; economic growth (search for similar items in EconPapers)
JEL-codes: C61 E62 H41 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2017
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