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Why should the government provide the infrastructure through the Public-Private Partnership mode?

Bara, Aman Appolinus and Chakraborty, Bidisha (2019): Why should the government provide the infrastructure through the Public-Private Partnership mode?

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Abstract

This paper develops an endogenous growth model with the non-rival but excludable public good. We seek to answer the question that whether this kind of infrastructure should be provided by pure private firm or by state or by Public-Private Partnership (PPP). And, if the government invests in this type of infrastructure, how should it finance the manufacturing cost-through accumulating debt or imposing a tax or by charging user-fees? In this paper, PPP in infrastructure is defined as a profit-making private firm-producing infrastructure with the partial cost borne by the government. The authors make a comparison of the macro-economic performances under the purely private provision, purely public provision and PPP provision of infrastructure in an economy. In the purely public provision of infrastructure, if the government runs a balanced budget or has constant debt, our model suggests that government should finance the infrastructure solely by charging user fees instead of imposing the tax. The model finds the condition under which the PPP provision of infrastructure is justified. The present paper finds the user fees and growth rate under the private provision and also user fees and growth maximising tax rate in 3 budgetary regimes: (a) when the government has constant debt, (b) when public debt is zero and (c) when there is accumulating debt, under the pure public provision of infrastructure and PPP provision of infrastructure. We find that there exists a unique, equilibrium steady state balanced growth rate in all the regimes. We compare the user fees and growth rates across different regimes.

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