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Public capital and distributional dynamics in a two-sector growth model

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  • Getachew, Yoseph Yilma

Abstract

This paper mainly develops a joint theory of public capital, inequality, and growth, in a two-sector growth model that yields complete analytical solutions. Public capital plays an important role in long-run growth through enhancing productivity and complementing the accumulation of private inputs. Under certain conditions, it could also have important implications for income inequality dynamics. Inequality is bad for growth, when the credit market is imperfect and there is a diminishing marginal rate of return on private investment. Certain public services and investment may benefit the poor more than proportionally and thus improve the distribution of income, and hence, improve economic growth through an indirect channel. The key mechanism linking the distribution of income to public capital is its disproportional effect on the economy that affects factor shares of capital. The paper also studies the determination of optimal tax.

Suggested Citation

  • Getachew, Yoseph Yilma, 2010. "Public capital and distributional dynamics in a two-sector growth model," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 606-616, June.
    • Handle: RePEc:eee:jmacro:v:32:y:2010:i:2:p:606-616
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    7. Chatterjee, Santanu & Turnovsky, Stephen J., 2012. "Infrastructure and inequality," European Economic Review, Elsevier, vol. 56(8), pages 1730-1745.
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    9. Aiyar, Shekhar & Ebeke, Christian, 2020. "Inequality of opportunity, inequality of income and economic growth," World Development, Elsevier, vol. 136(C).
    10. Getachew, Yoseph Y. & Turnovsky, Stephen J., 2015. "Productive government spending and its consequences for the growth–inequality tradeoff," Research in Economics, Elsevier, vol. 69(4), pages 621-640.
    11. Dou, Huan & Pang, Xinyuan & Ke, Huan & Liu, Yuanyuan, 2024. "Pain or gain? The effects of transportation infrastructure on labor costs in China 1," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 413-431.
    12. Miyake, Yusuke, 2021. "Public capital and childcare capital in the two sector growth model," MPRA Paper 108311, University Library of Munich, Germany.
    13. World Bank Group, 2017. "Global Economic Prospects, January 2017," World Bank Publications - Books, The World Bank Group, number 25823.
    14. Yu Jia & Yunqian Wang & Piao Li & Shuang Gao, 2024. "Economic Communication: The Influence of High-Speed Rail on Urban-Rural Income Inequality in China," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 174(1), pages 47-73, August.

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