Scale, Congestion and Growth

38 Pages Posted: 9 May 2012

See all articles by Theo S. Eicher

Theo S. Eicher

University of Washington - Department of Economics

Stephen J. Turnovsky

University of Washington - Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1998

Abstract

This paper explores the relationship between aggregate and relative congestion, returns to scale and economic growth. Aggregate congestion reduces the effective productivity of capital; relative congestion reduces the effective productivity of labour. Both forms of congestion adversely affect the equilibrium growth rate, although their relative effects depend upon aggregate returns to scale. The two forms of congestion have contrasting effects on the transitional dynamics. Relative congestion retards the rate of adjustment; aggregate congestion accelerates it. The externalities generated by congestion and non-optimal expenditure can be fully corrected, both during the transition and in steady state, by a time-invariant income tax.

Suggested Citation

Eicher, Theo S. and Turnovsky, Stephen J., Scale, Congestion and Growth (May 1998). Available at SSRN: https://ssrn.com/abstract=2054999 or http://dx.doi.org/10.2139/ssrn.2054999

Theo S. Eicher (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Stephen J. Turnovsky

University of Washington - Institute for Economic Research ( email )

Seattle, WA 98195
United States
206-685-8028 (Phone)
206-543-5955 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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