DYNAMIC ANALYSIS OF AN ENDOGENOUS GROWTH-MODEL WITH PUBLIC CAPITAL

This paper develops an endogenous growth model with productive public capital along with private capital in a spirit similar to that of Barro (1990). Since our model includes two stock variables, it has transitional dynamics, unlike most of the previous studies on endogenous growth including Barro's, where concerns are restricted to the steady state analysis. First, we show that the transitional path is unique and stable. Second, the character of the transitional path is explored. Third, we show that the optimal tax rate is smaller than the rate which maximizes the national growth rate with a log-linear utility function.