The inefficiency of firm-augmenting public input vs. The inapplicability of provision rules

Carsten Colombier

Public Economics from University Library of Munich, Germany

Abstract: This paper contributes to the debate about the appropriate efficiency rule for the provision of a firm-augmenting public input. This debate is caused by the dissatisfaction of Kaizuka-rule, i.e. a Samuelson-type condition for public inputs, in the long run. Therefore the applicability of Kaizuka-rule has been questioned. By developing an alternative efficiency rule this paper shows that firm-augmenting public input cannot be provided efficiently. The latter is due to the goods’ properties of firm-augmenting public input along with the assumption of firm-augmenting public input as an intermediate good a long term efficient equilibrium is excluded a priori. Consequently firm- augementing public input is unsuited for depicting public intermediate goods in economic models. Thus models, which use firm-augmenting public input, such as that of fiscal competition and of endogenous growth, should be reconsidered.

Keywords: firm-augmenting public input; Kaizuka-rule; social surplus (search for similar items in EconPapers)
JEL-codes: D61 H41 H54 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2004-10-07
Note: Type of Document - pdf; pages: 20. pdf document with 20 pages
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwppe:0410003

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