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- Publisher
- Wiley
- Copyright
- The Editors of the Scandinavian Journal of Economics 2001
- ISSN
- 0347-0520
- eISSN
- 1467-9442
- DOI
- 10.1111/1467-9442.00246
- Publisher site
- See Article on Publisher Site
Abstract
We develop an endogenous growth model driven by externalities from both private and public capital. The government levies distortionary taxation to finance a publicly provided consumption good and public infrastructure. Firms face adjustment costs. We compare the optimal and time‐consistent policies in a linear‐quadratic approximation of the model. Although the time‐consistent equilibrium is sub‐optimal in terms of ex‐ante intertemporal welfare, it yields higher long‐run growth and welfare, through an accumulation of assets by the state and a cut in government consumption.
Journal
The Scandinavian Journal of Economics – Wiley
Published: Jun 1, 2001