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Published online by Cambridge University Press:  16 November 2010

Nigar Hashimzade
University of Reading
Gareth D. Myles*
University of Exeter and Institute for Fiscal Studies
Address correspondence to: Gareth D. Myles, Department of Economics, University of Exeter, Exeter EX6 8HT, UK; e-mail:


The paper analyzes a multicountry extension of the Barro model of productive public expenditure. In the presence of positive infrastructural externalities between countries, the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supranational body, such as the European Union, to coordinate the policies of the individual governments. It is shown how intervention by a supranational body can raise welfare by internalizing the infrastructural externality. Infrastructural externalities increase the importance of tax policy in the growth process and distribute the benefits of taxation across countries.

Copyright © Cambridge University Press 2010

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