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The public investment rule in a simple endogenous endogenous growth model with public capital: active or pasive?

Marrero, Gustavo A. (2003) The public investment rule in a simple endogenous endogenous growth model with public capital: active or pasive? [Working Paper or Technical Report]

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Abstract

In dynamic settings with public capital, it is common to assume that the government
claims a constant fraction of public investment to total output each period, which is
clearly a restrictive assumption. The goal of the paper is twofold: first, to find out a more
reasonable rule for public investment, consistent with US data, than the constant-ratio
rule; second, to analyze the impact of that rule on welfare and judge the public investment
downsizing process held in US since the end of the sixties. Calibrating for US, the model
simulation captures the public investment downsizing process held during 1960-2001, as
well as the post-1970 slowdown in private factors productivity. Downsizing would be
optimal whenever the public capital elasticity is approximately smaller than 0.09, a lower
level than the general consensus in the literature. Thus, it is more likely that our result
be consistent to Aschauer (1989) and Munnell (1990), which put forth that policymakers
would have reduced the stock of public capital below its optimum level along this time.

Item Type:Working Paper or Technical Report
Additional Information:JEL Classification: E0, E6, O4.
Uncontrolled Keywords:Public investment rule, Policy coordination, Transitional dynamics, Endogenous growth, Public capital elasticity
Subjects:Social sciences > Economics > Public economy
Series Name:UCM. Instituto Complutense de Análisis Económico. Documentos de trabajo
Volume:2004
Number:0401
ID Code:7914
Deposited On:26 May 2008
Last Modified:06 Feb 2014 07:56

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