Limiting Initial Access to Public Capital for Long Run Growth

Public capital investments played a major role in the rise of China to be the second-largest economy. Interestingly China initially limited access to public capital to a subset of the population, and later expanded access to others as the economy grew. We develop an overlapping-generations model with intergenerational altruism, where access to public capital affects growth due to congestion. Limiting access during early stages of development helps reach the wealthier steady state faster, improving welfare. When there are more altruistic agents in the economy, taxes and economic growth rates are higher and access restrictions to public capital are relaxed earlier.