Public capital investment plays an important role in long run growth
through enhancing productivity and complementing the accumulation of
private inputs. Under appropriate conditions, public capital could also
have important implications for income distribution dynamics. When the
credit market is imperfect and there are diminishing returns to private
factors, income inequality is negatively related to economic growth. The
dynamics of income distribution is determined by relative income shares
of private input, wherever initial endowment differs among individuals.
Therefore, if the provision of public capital has an effect on relative
income shares of private inputs, then it will have an effect on income
distribution dynamics. In this case, public capital once more becomes an
important determinant of long-run growth through its indirect effect on
income distribution. The paper studies this and other interesting issues
with respect to public capital, income inequality and economic growth.
Key words: Income distribution, Public capital, economic Growth JEL codes: D31, H54, O41
UNU-MERIT Working Papers ISSN 1871-9872