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Scale, Congestion, and Growth

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  • Theo S Eicher
  • Stephen Turnovsky
Abstract
This paper explores the relationship between aggregate and relativecongestion, returns to scale and economic growth. Aggregate congestionreduces the effective productivity of capital; relative congestion reducesthe effective productivity of labour. Both forms of congestion adverselyaffect the equilibrium growth rate, although their relative effects dependupon aggregate returns to scale. The two forms of congestion havecontrasting effects on the transitional dynamics. Relative congestionretards the rate of adjustment; aggregate congestion accelerates it. Theexternalities generated by congestion and non‐optimal expenditure can befully corrected, both during the transition and in steady state, by atime‐invariant income tax.
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Suggested Citation

  • Theo S Eicher & Stephen Turnovsky, 1998. "Scale, Congestion, and Growth," Discussion Papers in Economics at the University of Washington 0071, Department of Economics at the University of Washington.
    • Handle: RePEc:fth:washer:0071
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    Cited by:

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    3. Vladimir V. Dashkeev & Stephen J. Turnovsky, 2023. "Tax systems and public borrowing limits in a fiscal union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 351-395, April.
    4. Karayalcin, Cem & Ulubasoglu, Mehmet Ali, 2009. "Romes without empires: urban concentration, political competition, and economic growth," Working Papers eco_2009_18, Deakin University, Department of Economics.
    5. Cem Karayalçin, 2008. "Divided We Stand, United We Fall: The Hume-North-Jones Mechanism For The Rise Of Europe," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 973-997, August.
    6. Mihaela Pintea, 2004. "Fiscal Policy in a Two-Sector Economy with Public Capital and Congestion," Computing in Economics and Finance 2004 55, Society for Computational Economics.

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