〈Articles>Public Capital, Capacity Utilization, and Economic Growth

Abstract

publisher[Abstract] This paper incorporates capital utilization in an endogenous growth model with public capital, and examines the effects of fiscal policy on both economic performance and welfare.　Dynamic analysis reveals that maximizing equilibrium capacity coincides with maximizing the economic growth rate in the long-run, though not in the short-run. It also demonstrates that the growth-maximizing tax rate is either increasing or decreasing with respect to the marginal cost of private capital utilization and capacity utilization of public capital depending on the elasticity of substitution. Welfare analysis shows that the growth-maximizing government not only over-invests but also under-invests in public capital stock.　Similarly, it shows not only an excess use of public capital but also insufficient use of public capital