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Scale, Congestion and Growth

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  • Theo Eicher
  • Stephen J. Turnovsky

Abstract

This paper explores the relationship between aggregate and relativecongestion, returns to scale and economic growth. Aggregate congestionreduces the effective productivity of capital; relative congestion reducesthe effective productivity of labour. Both forms of congestion adverselyaffect the equilibrium growth rate, although their relative effects dependupon aggregate returns to scale. The two forms of congestion havecontrasting effects on the transitional dynamics. Relative congestionretards the rate of adjustment; aggregate congestion accelerates it. Theexternalities generated by congestion and non‐optimal expenditure can befully corrected, both during the transition and in steady state, by atime‐invariant income tax.

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  • Theo Eicher & Stephen J. Turnovsky, 2000. "Scale, Congestion and Growth," Economica, London School of Economics and Political Science, vol. 67(267), pages 325-346, August.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:267:p:325-346
    DOI: 10.1111/1468-0335.00212
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    2. Ingrid Ott & Susanne Soretz, 2006. "Governmental activity, integration, and agglomeration," Working Paper Series in Economics 57, University of Lüneburg, Institute of Economics.
    3. Xiaodong Chen & Haoming Mi & Peng Zhou, 2024. "Whether to decentralize and how to decentralize? The optimal fiscal federalism in an endogenous growth model," Applied Economics, Taylor & Francis Journals, vol. 56(29), pages 3499-3516, June.
    4. Vladimir V. Dashkeev & Stephen J. Turnovsky, 2023. "Tax systems and public borrowing limits in a fiscal union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 351-395, April.
    5. Cem Karayalçin, 2008. "Divided We Stand, United We Fall: The Hume-North-Jones Mechanism For The Rise Of Europe," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 973-997, August.
    6. Mihaela Pintea, 2004. "Fiscal Policy in a Two-Sector Economy with Public Capital and Congestion," Computing in Economics and Finance 2004 55, Society for Computational Economics.

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