Delays in Public Goods
30 Pages Posted: 2 Feb 2017 Last revised: 28 Feb 2018
Date Written: January 31, 2017
In this paper, we analyze the consequences of delays and cost overruns typically associated with the provision of public infrastructure in the context of a growing economy. Our results indicate that uncertainty about the arrival of public capital can more than offset its positive spillovers for private-sector productivity. In a decentralized economy, unanticipated delays in the provision of public capital generate too much consumption and too little private investment relative to the first-best optimum. The characterization of the first-best optimum is also affected: facing delays in the arrival of public goods, a social planner allocates more resources to private investment and less to consumption relative to the first-best outcome in the canonical model (without delays). The presence of delays also lowers equilibrium growth, and leads to a diverging growth path relative to that implied by the canonical model. This suggests that delays in public capital provision may be a potential determinant of cross-country differences in income and economic growth.
Keywords: Public goods, delays, time overrun, cost overrun, implementation lags, fiscal policy, economic growth.
JEL Classification: C61, E62, H41, O41
Suggested Citation: Suggested Citation