Congestion, excludability and endogenous growth

This paper investigates within an endogenous growth model how a congested productive governmental input should be financed if exclusion is possible. The instruments are taxes and fees. To create the macroeconomic equilibrium the planner has to ensure production efficiency with the optimal expenditure ratio. The optimal instruments depend on the degree of congestion. In case of no congestion only user fees are charged. If congestion exists, a distortionary income tax internalizes the negative external effect arising from capital accumulation. The fee is set to enable production efficiency and a negative consumption tax allows for the optimal expenditure ratio.