Growth through taxes or borrowing? A model of development traps with public capital

R. Burguet, J. Fernández-Ruiz

Research output: Contribution to journalArticleResearch

7 Citations (Scopus)

Abstract

We consider a simple model of growth in an economy with public capital. The government finances public capital with tax revenue or debt. This results in areas of increasing returns to scale and different (sets of) feasible steady states that are determined by initial conditions. With a balanced budget, it may not be feasible to move from low to high income levels. In this case, external debt may be the only way out of such a development trap, provided the world interest rate is low enough.
Original languageEnglish
Pages (from-to)327-344
JournalEuropean journal of political economy = Europäische Zeitschrift für politische Ökonomie
Volume2
Issue number14
DOIs
Publication statusPublished - 1 Jan 1998

Keywords

  • Development traps
  • External debt
  • H54
  • O23
  • O40
  • Public capital

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