Common-property, public infrastructure and rent dissipation in the long-run

Abstract

By means of an overlapping generations model we study some long-run steady state features prompted by free-access public capital which enters a constant-returns-to-scale production function, dissipating its return among the private factors. The public investment is funded by lump-sum taxes in both younger and older generations. Our main conclusion is that the utility of an individual living in the long run steady state equilibrium may decline, even when the private capital-labor ratio increases, as a consequence of both an increase in per-capita public investment, and a shift of the tax burden from the younger to the older generation.