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

Gustavo Marrero ()

Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

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.

Keywords: Public investment rule; Policy coordination; Transitional dynamics; Endogenous growth; Public capital elasticity (search for similar items in EconPapers)
JEL-codes: E0 E6 O4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-mac and nep-pbe
Date: 2004
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