PUBLIC-INVESTMENT IN INFRASTRUCTURE IN A SIMPLE GROWTH-MODEL

In this paper, we examine the implications for capital accumulation wh en infrastructure enters as an external input into private production functions. In our model, infrastructure is nonexclusive but may exhibi t varying degrees of nonrivalry. Revenues from uniform taxes on capita l and labor income are used to finance public investment in infrastruc ture. We show that the optimal tax rate is independent of the degree o f nonrivalry. When production exhibits constant returns to augmentable factors, the equilibrium displays constant growth. For most parameter s, the growth rate depends on the population size. Under decreasing re turns, the optimal trajectory exhibits monotonic convergence to a stea dy state level.