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An Active Public Investment Rule and the Downsizing Experience in the US: 1960-2000

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Author Info
Gustavo Marrero (Universidad Complutense de Madrid and ICAE)

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Abstract

We use a simple growth model with public capital to examine the evolution of the US macroeconomy and to discuss the implications of the public infrastructure decline for the productivity slowdown over the last four decades. The main difference of the model to other papers in the related literature is that public investment is actively managed as a non-linear function of the state of the economy, and is not a constant fraction of output in every period. The active management policy delivers transition dynamics that reproduce the public capital downsizing episode, but that accounts for only a minor fraction of the observed productivity slowdown. However, taking into consideration higher rates of returns to public capital or the reallocation of public resources from productive to unproductive expenditures, which is consistent with the US experience in the 70s and 80s, the model simulation accounts for most of the observed productivity slowdown.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Macroeconomics.

Volume (Year): 5 (2005)
Issue (Month): 1 ()
Pages: 1282-1282
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Handle: RePEc:bep:mactop:v:5:y:2005:i:1:p:1282-1282

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Related research
Keywords: Public capital active policy rules downsizing productivity slowdown endogenous growth.

Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

References listed on IDEAS
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  3. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June. [Downloadable!] (restricted)
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  7. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Alfonso Novales & Emilio Dominguez & Javier J. Perez & Jesus Ruiz, 1998. "Solving Non-linear Rational Expectations Models By Eigenvalue-Eigenvector Decompositions," QM&RBC Codes 124, Quantitative Macroeconomics & Real Business Cycles. [Downloadable!]
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  14. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280. [Downloadable!] (restricted)
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