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We want to explore the role of infrastructure in economic growth by modeling infrastructure as productive public capital in a Solow-style model. The key

We want to explore the role of infrastructure in economic growth by modeling infrastructure as productive b) Describe the law of motion for this economy and depict it in a diagram. c) Compute the capital stock K* >

We want to explore the role of infrastructure in economic growth by modeling infrastructure as productive public capital in a Solow-style model. The key departure from the textbook version is that public capital, G, enhances total factor productivity (TFP). In particular, start with simple aggregate production technology Y = AKON- A = G 0 0 in the positive steady state and describe how it depends on the tax rater. Explain the intuition behind it. e) What tax rate * should the government choose if it wants to maximize GDP in the positive steady state? Explain the intuition behind it.

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a The private capital is equal to the private savings and given as Kt It 1T Yt The government spend... blur-text-image

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