SHOULD PUBLIC CAPITAL BE SUBSIDIZED OR PROVIDED

In an endogenous-growth model, we consider alternative ways of providi ng public capital using distortionary taxes. We show that if the gover nment provides the good, the resulting growth rate and welfare may or may not be higher than under laissez-faire. By contrast, if the govern ment subsidizes private providers, not only are growth and welfare hig her than under public provision, they are also unambiguously higher th an under laissez-faire. (C) 1998 Elsevier Science B.V. All rights rese rved.