Does Precommitment Raise Growth ?

We develop an endogenous growth model driven by externalities from both private and public capital. The government levies distortionary taxation to finance a publicly provided consumption good and public infrastructure. Firms face adjustment costs. We compare the optimal and time-consistent policies in a linearquadratic approximation of the model. Although the time-consistent equilibrium is sub-optimal in terms of ex ante intertemporal welfare, it yields higher long-run growth and welfare, through an accumulation of assets by the state and a cut in government consumption.