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

Roberto Burguet; Jorge Fernández-Ruiz

doi:10.1016/S0176-2680(98)00010-X

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

Roberto Burguet, Jorge Fernández-Ruiz

Research output: Contribution to journal › Article › Research › peer-review

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 language	English
Pages (from-to)	327-344
Journal	European Journal of Political Economy
Volume	14
Issue number	2
DOIs	https://doi.org/10.1016/S0176-2680(98)00010-X
Publication status	Published - 1 Jan 1998

Keywords

Development traps
External debt
H54
O23
O40
Public capital

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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.",

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AB - 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.

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KW - H54

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KW - O40

KW - Public capital

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