Resumen de Returns to scale and the optimal level of productivity-enhancing public expenditures: a numerical approach

Diego Martínez, A. Jesús Sánchez

• This paper studies the optimal level of public inputs under two di¤erent tax settings. With this aim, we adapt the approach by Gron- berg and Liu (2001) to the case of productivity-enhancing public spen- ding. For this context, we .nd that it is not analytically clear whether the .rst-best level of public spending will always be greater than the second-best one. After taking account the type of public input (.rm or factor-augmenting), a wide numerical simulation has been carried out. We obtain that the second-best level will always below the .rst- best level, but that some of the criteria set forth by Gronberg and Liu must be quali.ed.