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Public Spending on Maintenance and Imperfect Competition

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  • Jin-Wen Lee

Abstract

This paper presents an endogenous growth model with monopolistic competition in the intermediate-goods sector. Maintenance spending on public capital not only increases the durability of public and private capital, but also raises the efficiency of infrastructure, as in Agenor (2005). We show that the growth-maximizing tax rate and the share of public maintenance spending may be both affected by the mark-up. However, when private depreciation is exogenous, the result is consistent with Agenor's basic model (2005), that is, the growth-maximizing tax rate and the share of maintenance spending are irrelevant to the degree of monopoly power.

Suggested Citation

  • Jin-Wen Lee, 2009. "Public Spending on Maintenance and Imperfect Competition," The American Economist, Sage Publications, vol. 54(2), pages 28-37, October.
    • Handle: RePEc:sae:amerec:v:54:y:2009:i:2:p:28-37
    DOI: 10.1177/056943450905400204
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    References listed on IDEAS

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    1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    2. repec:bla:scandj:v:95:y:1993:i:4:p:607-25 is not listed on IDEAS
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    4. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    5. Kalaitzidakis, Pantelis & Kalyvitis, Sarantis, 2004. "On the macroeconomic implications of maintenance in public capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 695-712, March.
    6. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
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