publication . Conference object . 2010

Public Investment, Revenue Shocks, and Borrowing Restrictions

Büttner, Thiess; Wildasin, David E.;
Open Access English
  • Published: 01 Jan 2010
  • Publisher: Verein für Socialpolitik Frankfurt a. M.
This paper lays out a theory of taxation and public investment in an intertemporal setting under conditions of revenue shocks. Without borrowing restrictions, the optimal policy is characterized by smooth time paths of taxes and public investment. While the introduction of formal borrowing restrictions leads to some precautionary savings, it gives rise to fluctuations in public investment in response to adverse but also favorable revenue shocks. This theoretical result is tested empirically using data on public investment of more than 1,000 US municipalities in the period from 1972 to 1997 in various states that impose or do not impose borrowing restrictions on ...
free text keywords: H74, H72, H71, ddc:330
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Conference object . 2010
Provider: EconStor
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