Public infrastructures, public consumption and welfare in a new open economy macro model

Giovanni Ganelli, Juha Tervala

    Forskningsoutput: ArbetsdokumentDiskussionsartiklarVetenskaplig

    Sammanfattning

    This paper focuses on the trade-off faced by governments in deciding the allocation of public expenditures between productivity-enhancing public infrastructures and utility-enhancing public consumption in a two-country model. The results show that a permanent increase in the domestic stock of public capital financed by a reduction in public consumption raises domestic welfare if the productivity of public capital is high and the weight of public consumption in private utility is low compared with private consumption. The effect on foreign welfare is negative in the short run, but positive in the long run. This implies that, if foreign authorities care not only about the present discounted value of welfare but also about welfare dynamics, a permanent domestic reallocation of public spending might result in a virtuous global technological cycle.
    This paper focuses on the trade-off faced by governments in deciding the allocation of public expenditures between productivity-enhancing public infrastructures and utility-enhancing public consumption in a two-country model. The results show that a permanent increase in the domestic stock of public capital financed by a reduction in public consumption raises domestic welfare if the productivity of public capital is high and the weight of public consumption in private utility is low compared with private consumption. The effect on foreign welfare is negative in the short run, but positive in the long run. This implies that, if foreign authorities care not only about the present discounted value of welfare but also about welfare dynamics, a permanent domestic reallocation of public spending might result in a virtuous global technological cycle.
    Originalspråkengelska
    UtgivningsortHelsinki
    FörlagBank of Finland
    Antal sidor35
    ISBN (tryckt)978-952-462-496-1
    ISBN (elektroniskt)978-952-462-497-8
    StatusPublicerad - 2009
    MoE-publikationstypD4 Publicerad utvecklings- eller forskningsrapport eller studie

    Vetenskapsgrenar

    • 511 Nationalekonomi

    Citera det här

    Ganelli, G., & Tervala, J. (2009). Public infrastructures, public consumption and welfare in a new open economy macro model. (Bank of Finland Research Discussion Papers; Nr. 8/2009). Helsinki: Bank of Finland.
    Ganelli, Giovanni ; Tervala, Juha. / Public infrastructures, public consumption and welfare in a new open economy macro model. Helsinki : Bank of Finland, 2009. (Bank of Finland Research Discussion Papers; 8/2009).
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    Ganelli, G & Tervala, J 2009 'Public infrastructures, public consumption and welfare in a new open economy macro model' Bank of Finland Research Discussion Papers, nr. 8/2009, Bank of Finland, Helsinki.

    Public infrastructures, public consumption and welfare in a new open economy macro model. / Ganelli, Giovanni; Tervala, Juha.

    Helsinki : Bank of Finland, 2009. (Bank of Finland Research Discussion Papers; Nr. 8/2009).

    Forskningsoutput: ArbetsdokumentDiskussionsartiklarVetenskaplig

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    Ganelli G, Tervala J. Public infrastructures, public consumption and welfare in a new open economy macro model. Helsinki: Bank of Finland. 2009. (Bank of Finland Research Discussion Papers; 8/2009).