Infrastructure, alternative government finance and stochastic endogenous growth

This paper constructs a stochastic version of an endogenously growing economy with a public good that raises the productivity of private capital. We explore how growth and welfare are influenced by changes in the mean and variance of productive public spending under two alternative financing methods, mixed money-bond financing and wealth-tax financing. In addition, to evaluate the differences between money financing and bond financing, we consider mixed money-bond financing, under which a larger ratio of bonds to money is utilized to finance a given increase in public spending.