Welfare and fiscal policy with public goods and infrastructure

• Autor(a) principal: Ferreira, Pedro Cavalcanti
• Data de Publicação: 1995
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
• Texto Completo: http://hdl.handle.net/10438/12170
• topic: Welfare; Infrastructure; Labor productivity; Fiscal Policy; Economia; Política tributária; Despesa pública; Investimentos públicos; Consumo (Economia); Infraestrutura (Economia)

We construct and simulate a model to study the welfare and macroeconomic impact of government actions when its productive role is taken into account. The trade-off between public investment and public consumption is also investigated, since public consumption is introduced as a public good that directly affects individuals' well-being. Our results replicate econometric evidence showing that part of the observed slowdown of U.S. productivity growth can be explained by the reduction of investment in infrastructure, which also implied a sizable welfare loss to the population. Depending on the methodology used we found a welfare cost ranging from 4.2% to 1.16% of GNP. The impact of fiscal policy can be qualitative and quantitative distinct depending on whether we assume a higher or smaller output-elasticity to infrastructure. If it is high enough, increases in tax rates may stimulate accumulation and production, which is the opposite prediction of standard neoclassical models.