Ott, I., Turnovsky, S. J.

Economica, 2006, Vol. 73 (292), pp. 725–748

Abstract

Non‐excludable and excludable public inputs are introduced into an endogenous growth model. We derive the equilibrium growth rate and design the optimal tax and user‐cost structure, emphasizing the role of congestion and its consequences for the government's budget. The latter comprises fee and tax revenues that are used to finance the public inputs, although they may generate insufficient revenue to do so entirely. We extend the model to allow for monopoly pricing of the user fee by the government. Most of the analysis is conducted for general production functions consistent with endogenous growth, but the CES technology is also considered.