Public versus private provision of infrastructure in a neoclassical growth model

Pedro Ferreira

No 339, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: This article studies the welfare and long run allocation impacts of privatization. There are two types of capital in this model economy, one private and the other initially public ('infrastructure'). A positive externality due to infrastructure capital is assumed, so that the government could improve upon decentralized allocations internalizing the externality, but public investmentis …nanced through distortionary taxation. It is shown that privatization is welfare-improving for a large set of economies and that after privatization under-investment is optimal. When operation inefficiency in the public sectoror subsidy to infrastructure accumulation are introduced, gains from privatization are higherand positive for most reasonable combinations of parameters.

Date: 1998-11-01
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:339

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