| dc.description.abstract | Public Spending on Maintenance and Imperfect Competition
Abstract
The government faces an option between building ‘new’ infrastructure and increasing maintenance expenditure. The maintenance work done in the present is not only a contribution to current final output, but also to the final output of future years. On the other hand, in the recent years, imperfect competition has become a central element of macroeconomics. In contrast to the existing literature, we construct a general equilibrium endogenous growth model with monopolistic competition in the intermediate-goods sector to as we discuss the optimal fiscal policy.
In Chapter 2, we develop an infrastructure-led two-sector endogenous growth model in which public and private capital stocks are entered directly into the production function. Moreover, we assume that maintenance spending by the public sector not only increases the durability of public capital, but also raises the efficiency of the infrastructure. In addition, we also discuss the impact of maintenance spending on the private capital stock. We show that the growth-maximizing tax rate and the share of public maintenance spending may be also affected by the mark-up. However, when private depreciation is exogenous, the growth-maximizing tax rate and the share of maintenance spending are irrelevant to the degree of monopoly power.
In Chapter 3, we also consider an endogenous growth model with monopolistic competition in the intermediate-goods sector. We assume that the depreciation rate of public capital in infrastructure depends negatively on and is linearly related to the ratio of maintenance spending to the economic output. In a departure from the model in Chapter 2, we emphasize the role of endogenous labor utilization in the growth model. Moreover, in this chapter we discuss the steady-state growth-maximizing tax rate as well as welfare-maximizing tax rate of the economy. The welfare-maximizing tax rate is less than the growth-maximizing tax rate for a mildly conservative simulation based on our given parameter values.
| en_US |