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Infrastructure Investment and Maintenance Expenditure: Optimal Allocation Rules in a Growing Economy
Author(s) -
AGÉNOR PIERRERICHARD
Publication year - 2009
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2009.01408.x
Subject(s) - investment (military) , economics , endogenous growth theory , welfare , public infrastructure , revenue , capital expenditure , public capital , microeconomics , capital (architecture) , private capital , public expenditure , growth model , human capital , public economics , monetary economics , public investment , macroeconomics , finance , market economy , public finance , production (economics) , archaeology , politics , political science , law , history
This paper studies the allocation of public expenditure between infrastructure investment and maintenance in an endogenous growth framework. In the basic model, maintenance spending affects both the durability and efficiency of public capital. The balanced growth path is derived and transitional dynamics associated with a revenue‐neutral increase in expenditure on maintenance are analyzed. The model is then extended to account for the possibility that public spending on maintenance affects also the durability of private capital. The growth‐maximizing tax rate and share of infrastructure investment are calculated in both cases. First‐ and second‐best welfare‐maximizing solutions are also discussed.