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

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  • Marrero Gustavo A.

    (Universidad Complutense de Madrid and ICAE)

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.

Suggested Citation

  • Marrero Gustavo A., 2005. "An Active Public Investment Rule and the Downsizing Experience in the US: 1960-2000," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-28, May.
    • Handle: RePEc:bpj:bejmac:v:topics.5:y:2005:i:1:n:9
    DOI: 10.2202/1534-5998.1282
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    Cited by:

    1. Gustavo Marrero, 2010. "Tax-mix, public spending composition and growth," Journal of Economics, Springer, vol. 99(1), pages 29-51, February.
    2. Marrero, Gustavo A., 2008. "Revisiting The Optimal Stationary Public Investment Policy In Endogenous Growth Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 12(2), pages 172-194, April.

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