Does precommitment raise growth? The dynamics of growth and fiscal policy

We develop an endogenous growth model driven by externalities from both pri vate and public capital. The government levies distortionary taxation to fi nance a publicly provided consumption good and public infrastructure. Firms face adjustment costs. We compare the optimal and time-consistent policies in a linear-quadratic approximation of the model. Although the time-consis tent equilibrium is sub-optimal in terms of ex-ante intertemporal welfare, it yields higher long-ran growth and welfare, through an accumulation of as sets by the state and a cut in government consumption.