Growth strategies: Fiscal versus institutional policies

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This paper analyzes the growth impact of fiscal and institutional policies for alternative sizes of regions. The local government provides a public input that may be subject to relative congestion thus reducing its individual availability. Then private capital productivity is affected by the number of firms utilizing the governmental input. Institutional policies include the decision about the type of public input while fiscal policies decide on its extent. Private capital accumulation incurs adjustment costs that depend upon the ratio between private and public investment. After deriving the decentralized equilibrium, fiscal and institutional policies as well as their interdependencies and welfare implications are discussed. Due to the feedback effects both policies may not be determined independently. It is shown that depending on the region's size a certain type of the public input maximizes growth.

Original languageEnglish
JournalEconomic Modelling
Issue number4
Pages (from-to)605-622
Number of pages18
Publication statusPublished - 01.07.2008

    Research areas

  • Economics - Adjustment costs, Congested public inputs, Fiscal and institutional policies, Regional growth