Growth and public infrastructure
Hashimzade, N. and Myles, G. D. (2010) Growth and public infrastructure. Macroeconomics Dynamics, 14 (Supple). pp. 258-274. ISSN 1469-8056
To link to this item DOI: 10.1017/S1365100510000374
The paper analyzes a multicountry extension of the Barro model of productive public expenditure. In the presence of positive infrastructural externalities between countries, the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supranational body, such as the European Union, to coordinate the policies of the individual governments. It is shown how intervention by a supranational body can raise welfare by internalizing the infrastructural externality. Infrastructural externalities increase the importance of tax policy in the growth process and distribute the benefits of taxation across countries.