Delays in Public Goods

31 Pages Posted: 15 Mar 2017  

Santanu Chatterjee

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Olaf Posch

Universität Hamburg, Department of Economics; CREATES

Dennis Wesselbaum

University of Hamburg

Multiple version iconThere are 2 versions of this paper

Date Written: February 20, 2017

Abstract

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: C610, E620, H410, O410

Suggested Citation

Chatterjee, Santanu and Posch, Olaf and Wesselbaum, Dennis, Delays in Public Goods (February 20, 2017). CESifo Working Paper Series No. 6341. Available at SSRN: https://ssrn.com/abstract=2932761

Santanu Chatterjee

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Department of Economics
University of Georgia
Athens, GA 30602
United States
706-542-1709 (Phone)

HOME PAGE: http://www.terry.uga.edu/people/schatt/Home.htm

Olaf Posch (Contact Author)

Universität Hamburg, Department of Economics ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Dennis Wesselbaum

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

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