The public investment rule in a simple endogenous endogenous growth model with public capital: active or pasive?
Loading...
Download
Official URL
Full text at PDC
Publication date
2004
Authors
Advisors (or tutors)
Editors
Journal Title
Journal ISSN
Volume Title
Publisher
Instituto Complutense de Análisis Económico. Universidad Complutense de Madrid
Citation
Ai, C. and S.P. Cassou (1993). “The Cumulative Benefit of Government Capital Investment”, Manuscript (SUNY, Stony Brook, NY).
Aschauer, D.A. (1989). “Is Public Expenditure Productive?”, Journal of Monetary Economics, 23, 177-200.
Barro, R.J. (1990). “Government Spending in a Simple Model of Endogenous Growth”, Journal of Political Economy, 98, 5, S103-S125.
Cassou, S.P. and K.J. Lansing (1998). “Optimal Fiscal Policy, Public Capital and the Productivity Slowdown”, Journal of Economic Dynamics and Control, 22, 911-935.
Cassou and Lansing (1999). “Fiscal Policy and Productivity Growth in the OCDE”, Canadian Journal of Economics, forthcoming.
Easterly, W. and S. Rebelo (1993). “Fiscal Policy and Economic Growth, an Empirical Investigation”, Journal of Monetary Economics, 32, 417-458.
Futagami, K., Y. Morita and A. Shibata (1993). “Dynamic Analysis of an Endogenous Growth Model with Public Capital”, Scandinavian Journal of Economics, 95(4), 607-625.
Glomm, G. and B. Ravikumar (1994). “Public Investment in Infrastructure in a Simple Growth Model”, Journal of Economic Dynamic and Control, 18, 1173-1187.
Glomm, G. and B. Ravikumar (1997). “Productive Government Expenditures and Long-Run Growth”, Journal of Economic Dynamics and Control, 21, 183-204.
Jones, L.E., R.E. Manuelli and P.E. Rossi (1993). “Optimal Taxation in Models of Endogenous Growth”, Journal of Political Economy, 101 (3), 485-517.
Jones, L.E. and R.E. Manuelli (1997). “The Sources of Growth”, Journal of Economic Dynamics and Control, 21, 75-114.
King R.G. and S. Rebelo (1988). “Production, Growth and Business Cycles II: New Directions”, Journal of Monetary Economics, 21, 309-341.
Lynde, C. and J. Richmond (1993). “Public Capital and Total Factor Productivity”, International Economic Review, 401-444.
Mehra, R. and E.C. Prescott (1985). “The Equity Premium: a Puzzle”, Journal of Monetary Economics, 15, 145-161.
Munnell, A. (1990). “How does Public Infrastructure Affect Regional Performance?”, New England Economic Review, Sept./Oct., 11-32.
Munnell, A. (1992). “Policy Watch: Infrastructure Investment and Economic Growth”, Journal of Economic Perspectives, 6, 189-198.
Novales, A., E. Domínguez, J.J. Pérez and J.Ruiz (1999). “Solving Nonlinear Rational Expectations Models by Eigenvalue-Eigenvector Descompositions”, Chapter 4 in Computational Methods for the Study of Dynamic Economies, R.Marimón and A. Scott (eds.), Oxford University Press.
Ratner, J.B. (1983). “Government Capital and the Production Function for the US Private Output”, Economic Letters, 13, 213-217.
Rebelo, S. (1991). “Long-Run Policy Analysis and Long-Run Growth”, Journal of Political Economy, 99, 500-521.
Romer, P.M. (1986). “Increasing Returns and Long-Run Growth”, Journal of Monetary Economics, 94, 5, 1002-1037.
Svenson, L.E. (1999). “Inflation Targeting as a Monetary policy Rule”, Journal of Monetary Economics, 43 (3), 607-654.
Taylor, J.B. (1999). “The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank”, Journal of Monetary Economics, 43 (3), 655-679.
Turnovsky, S.J. (1996). “Optimal Tax and Expenditure Policies in a Growing Economy”, Journal of Public Economics, 60, 21-44.
Turnovsky, S.J. (2000). “Fiscal Policy, Elastic Labor Supply, and Endogenous Growth”, Journal of Monetary Economics, 45, 185-210.
Uhlig, H. (1999). “A Toolkit for Analyzing Non-linear Dynamic Stochastic Models Easily”, Chapter 3 in Computational Methods for the Study of Dynamic Economies, R. Marimón and A. Scott (eds.), Oxford University Press.
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.