An Analysis of the Optimal Provision of Public Infrastructure: A Computational Model Using Mexican Data

Andrew Feltenstein () and Jiming Ha

No 1996/013, IMF Working Papers from International Monetary Fund

Abstract: An intertemporal general equilibrium model is used to examine infrastructure effects on the Mexican national income. Production functions are estimated for the major sectors of the economy in which sectoral output depends on inputs of capital and labor, as well as the stocks of the public infrastructure. The analysis indicates that despite high estimated output elasticities with respect to public infrastructure, increased expenditure on infrastructure has rapidly decreasing benefits. Some benefits could be achieved by modest increases in capital expenditures, although at the cost of significantly higher inflation and real interest rates. The increase in real interest rates causes these benefits to be greatly reduced.

Keywords: WP; budget deficit; Depreciación y Formación de capital del Banco de México; maximization problem; returns to scale; inflation rate; Cobb-Douglas production function; Infrastructure; Government debt management; Budget planning and preparation; East Asia; South Asia (search for similar items in EconPapers)
Pages: 22
Date: 1996-02-01
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Journal Article: An analysis of the optimal provision of public infrastructure: a computational model using Mexican data (1999)
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