The optimal policy in the provision of public inputs: to what extent do technology, taxation and preferences matter?

Public spending policy is currently being redefined in most of the advanced economies, dramatically affecting public investment. This paper studies the sensitivity of the provision of public inputs to changes in the technology, taxation and consumer preferences. We consider a simple model in which the government with recourse to three different tax settings provides firms with certain productive services. We look at several specific cases in which the returns to scale in the production function emerges as a critical issue. Our findings also address the impact of changes in output elasticity, in consumer preferences and in the number of households, on the levels of public input and welfare.