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A Note on Endogenous Growth with Public Capital

Bhattacharyya, Chandril (2014): A Note on Endogenous Growth with Public Capital.

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Abstract

This paper develops a two sector model of endogenous economic growth with public capital where private goods and public investment goods are produced with different production technologies. The government buys public investment goods produced by private producers; and the government is a monopsonist in this market to determine the price. However, growth rate maximising buying price of public investment good is not identical with the competitive price of the final good and the growth rate maximising income tax rate in the steady state equilibrium is independent of the technology in public good production. It is also shown that the welfare maximising solution is not necessarily identical to the growth rate maximising solution even in the steady state equilibrium.

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