Congestible Public Goods and Indeterminacy in a Two-sector Endogenous Growth Model

Been-Lon Chen and Shun-Fa Lee ()

No 05-A003, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: This paper develops a new mechanism for local indeterminacy in a constant-return, two-sector, human capital enhanced growth model, with productive public spending financed by the income taxation in the goods sector. The use of productive public goods services is subject to an external congestion effect in association with the quantity of aggregate physical as well as human capital used in the economy. We establish local indeterminate equilibrium paths driven by the congestion effect. The possibility of local indeterminacy emerges because under constant returns, the congestion effect reduces the marginal contribution of public goods services and increases the marginal contribution of physical as well as human capital, thereby making the social marginal products to deviate from those of the firm’s perspective.

Keywords: two-sector model; indeterminacy; congestion (search for similar items in EconPapers)
JEL-codes: D90 O40 O41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2005-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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