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Output Dynamics, Technology, and Public Investment

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Author Info

  • Pedro R. D. Bom

    (Tilburg University)

  • Ben J. Heijdra

    (University of Groningen, IHS-Vienna, Netspar, and CESifo)

  • Jenny Ligthart

    ()
    (Department of Economics and CentER, Tilburg, University)

Abstract

The paper studies the dynamic output effects of public infrastructure investment in a small open economy. We develop an overlapping generations model that includes a production externality of public capital and a wealth e ect on labor supply. Public capital enters the rm's production function under various technological scenarios. We show that if factors of production are gross complements and public capital is Solow neutral, which is the empirically plausible case, the long-run output multiplier falls short of its Hicks-neutral value. The way in which public capital augments factor productivity crucially a ects the dynamics of private capital and net foreign assets, but yields qualitatively similar output dynamics. In contrast to conventional results obtained from hysteretic models, we nd non-monotonic output dynamics of a public investment impulse in the non-hysteretic model. Schmitt-Grohe and Uribe's (2003) nding of identical impulse responses across the two model types is thus not robust to the inclusion of spillovers of public capital.

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Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper1024.

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Length: 47 pages
Date of creation: 01 Jun 2010
Date of revision:
Handle: RePEc:ays:ispwps:paper1024

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Related research

Keywords: infrastructure capital; public investment; fiscal policy; output multipliers; transitional dynamics; technology;

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Cited by:
  1. Bom, Pedro R.D. & Ligthart, Jenny E., 2014. "Public infrastructure investment, output dynamics, and balanced budget fiscal rules," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 334-354.

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