RT Report
T1 Revisiting the optimal stationary public investment policy in endogenous growth economies
A1 Marrero Díaz, Gustavo
AB One strand of the literature on endogenous growth concerns models in which public infrastructure affects the private production process. A puzzle in this literature is that observed public investment-to-output ratios for developed economies tend to fall short of theoretical model-based optimal ratios. We reexamine the optimal choice of public investment in a more general and plausible framework, which allows for a gradual transition between diferent steady states, a lower depreciation rate for public capital than for private capital, an elasticity of intertemporal substitution that differs from unity and the need to finance a non-trivial share of public services in output in each period. Given other fundamentals in the economy, we show that the optimal public investment-to-output ratio is smaller for low-growth economies, for economies populated by consumers with low preferences for substituting consumption intertemporally and when public capital is durable. Moreover, for a calibrated economy, we show that a combination of these factors solves the public investment puzzle.
PB Instituto Complutense de Análisis Económico. Universidad Complutense de Madrid
YR 2005
FD 2005
LK https://hdl.handle.net/20.500.14352/56630
UL https://hdl.handle.net/20.500.14352/56630
LA eng
DS Docta Complutense
RD 9 jun 2025