Technological change and the decline of public investment

Davide Debortoli and Pedro Gomes

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Over the past 40 years public investment has declined in most developed countries. This paper argues that such pattern can be the consequence of investment-specific technological progress. Public investment, mostly on infrastructures, experienced a slower rate of innovation than private investment, composed primarily by equipment and software. Within a simple neoclassical growth model with a public sector, we show that such type of technological progress reduces the incentives to invest in public capital, and accounts for 80 percent of the observed decline. The implied co-movements of other fiscal instruments are also consistent with observed trends.

Keywords: Public Investment; investment-specific technological change; public capital; profit tax; labor tax (search for similar items in EconPapers)
JEL-codes: E62 H21 H54 (search for similar items in EconPapers)
Date: 2014-06
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1685

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