Public Capital Maintenance and Congestion: Long-Run Growth and Fiscal Policies

33 Pages Posted: 20 Jul 2006

See all articles by Evangelos V. Dioikitopoulos

Evangelos V. Dioikitopoulos

Athens University of Economics and Business

Sarantis C. Kalyvitis

Athens University of Economics and Business - Department of International and European Economic Studies

Date Written: December 2006

Abstract

In this paper we study the equilibrium properties of an endogenous growth model, in which public maintenance expenditures affect the depreciation rate of public capital and the latter is subject to congestion. A rise in 'new' public investment and output also raises the public capital depreciation rate and reduces public capital accumulation due to increased public capital usage. We then point out a mechanism under which thresholds of policy variables for economic growth arise and we find that economies with low congestion in public infrastructure, in which the rise in output is high, will require a threshold level of public capital maintenance for ongoing growth. We also examine the fiscal implications of public capital maintenance policies and we find that the composition of public capital expenditures under congestion is a crucial determinant of optimal and growth-maximizing fiscal policies. The government can affect the return of public capital by re-allocating public expenditures between 'new' public investment and maintenance and hence avoid excessive taxation that is required under increasing congestion.

Keywords: public capital maintenance, congestion, taxation, optimal fiscal policies, growth-maximizing policies

JEL Classification: O41, H54, E62

Suggested Citation

Dioikitopoulos, Evangelos V. and Kalyvitis, Sarantis C., Public Capital Maintenance and Congestion: Long-Run Growth and Fiscal Policies (December 2006). Available at SSRN: https://ssrn.com/abstract=917780 or http://dx.doi.org/10.2139/ssrn.917780

Evangelos V. Dioikitopoulos

Athens University of Economics and Business ( email )

76 Patission Street
GR-10434 Athens
Greece

Sarantis C. Kalyvitis (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

Patission Str 76
GR-10434 Athens
Greece

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