Hostname: page-component-77c89778f8-sh8wx Total loading time: 0 Render date: 2024-07-16T11:18:20.894Z Has data issue: false hasContentIssue false
  • English
  • Français

SHOULD THE PRIVATE SECTOR PROVIDE PUBLIC CAPITAL?

Published online by Cambridge University Press:  20 March 2007

SANTANU CHATTERJEE
SANTANU CHATTERJEE
Affiliation:
University of Georgia
Get access Rights & Permissions [Opens in a new window]

Abstract

The choice between private and government provision of a productive public good like infrastructure (public capital) is examined in the context of an endogenously growing open economy. The accumulation of public capital need not require government provision, in contrast to the standard assumption in the literature. Even with an efficient government, the relative costs and benefits of government and private provision depend crucially on the economy's underlying structural conditions and borrowing constraints in international capital markets. Countries with limited substitution possibilities and large production externalities may benefit from governments encouraging private provision of public capital through targeted investment subsidies. By contrast, countries with flexible substitution possibilities and relatively smaller externalities may benefit either from governments directly providing public capital or from regulation of private providers. The transitional dynamics also are shown to depend on the underlying elasticity of substitution and the size of the production externality.

Keywords

Public CapitalPrivate ProvisionInfrastructure ProvisionSubsidiesDistortionary Taxation
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 11 , Issue 3 , June 2007 , pp. 318 - 346
Copyright
© 2007 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aizenman Joshua and Stephen J. Turnovsky 2002 Reserve requirements on sovereign debt in the presence of moral hazard–on debtors or creditors? Economic Journal 112, 107– 132.Google Scholar
Arrow Kenneth J. and Mordecai Kurz 1970 Public Investment, the Rate of Return, and Optimal Fiscal Policy. Baltimore, MD: Johns Hopkins University Press.
Aschauer David A. 1989 Is public expenditure productive? Journal of Monetary Economics 23, 177– 200.Google Scholar
Barro Robert J. 1990 Government spending in a simple model of endogenous growth. Journal of Political Economy 98, 103– 125.Google Scholar
Bergstrom Ted, Lawrence Blume and Hal Varian 1986 On the private provision of public goods. Journal of Public Economics 29, 25– 49.Google Scholar
Besley Timothy and Maitreesh Ghatak 2001 Government versus private ownership of public goods. Quarterly Journal of Economics 116, 1343– 1372.Google Scholar
Dailami Mansoor and Michael Klein (1998) Government Support to Private Infrastructure Projects in Emerging Markets. World Bank working paper 1868.Google Scholar
Devarajan Shantayanan, Danyang Xie and Heng-fu Zou 1998 Should public capital be subsidized or provided? Journal of Monetary Economics 41, 319– 331.Google Scholar
Dixit Avinash 2002 Incentives and organizations in the public sector: An interpretive review. Journal of Human Resources 37, 696– 727.Google Scholar
Duffy John and Chris Papageorgiou 2000 A cross-country empirical investigation of the aggregate production function specification. Journal of Economic Growth 5, 87– 120.Google Scholar
Edwards Sebastian 1984 LDC Foreign borrowing and default risk: An empirical investigation 1976-80. American Economic Review 74, 726– 734.Google Scholar
Futagami Koichi, Yuichi Morita and Akihisa Shibata 1993 Dynamic analysis of an endogenous growth model with public capital. Scandinavian Journal of Economics 95, 607– 625.Google Scholar
Glomm Gerhard and B. Ravikumar 1994 Public investment in infrastructure in a simple growth model. Journal of Economic Dynamics and Control 18, 1173– 1187.Google Scholar
Gramlich Edward M. 1994 Infrastructure investment: A review essay. Journal of Economic Literature 32, 1176– 1196.Google Scholar
Kohli Harinder, Asoka Mody, and Michael Walton 1997 Choices for Efficient Private Provision of Infrastructure in East Asia (eds.). Washington, DC.: The World Bank.
Kydland Finn E. and Edward C. Prescott 1977 Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy 85, 473– 491.Google Scholar
Mody Asoka 1997 Infrastructure Strategies in East Asia: the Untold Story (ed.). Washington, DC: The World Bank.
Obstfeld Maurice 1982 Aggregate spending and the terms of trade: Is there a Laursen-Metzler effect? Quarterly Journal of Economics 97, 251– 270.Google Scholar
Ogaki Masao and Carmen M. Reinhart 1998 Measuring intertemporal substitution: The role of durable goods. Journal of Political Economy 106, 1078– 1098.Google Scholar
Ortigueira Salvador and Manuel S. Santos 1997 On the speed of convergence in endogenous growth models. American Economic Review 87, 383– 399.Google Scholar
Romer Paul M. 1986 Increasing returns and long run growth. Journal of Political Economy 94, 1002– 1037.Google Scholar
Shleifer Andrei 1998 State versus private ownership. Journal of Economic Perspectives 12, 133– 150.Google Scholar
Turnovsky Stephen J. 1997 Fiscal policy in a growing economy with public capital. Macroeconomic Dynamics 1, 615– 631.Google Scholar
Turnovsky Stephen J. 2004 Transitional dynamics of fiscal policy: Long run capital accumulation and growth. Journal of Money, Credit, and Banking 36, 883– 910.Google Scholar
Turnovsky Stephen J. and Mihaela Pintea 2006 Public and private production in a two-sector economy. Journal of Macroeconomics 28, 273– 302.Google Scholar
World Bank 2003 Private Participation in Infrastructure: Trends in Developing Countries in 1990–2001. Washington, DC: Author.