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Rates of return to public and private capital: new estimates using nonlinear Euler equations

  • Jose E. Bosca
  • Antonio Cutanda
  • Javier Escriba

Results obtained by Otto and Voss show that public investment undertaken in Australia over recent decades satisfies conditions for intertemporal efficiency. This paper confirms this result, although lower output elasticities and rates of return to private and public capital are obtained. The reason for these results is that the earlier work is extended by estimating the parameter related to the elasticity of intertemporal substitution that was earlier restricted to a specific value. In fact, it is shown here that it is possible to obtain an economically reasonable (and statistically significant) estimate of this parameter by assuming that the stochastic discount factor for the representative firm is the same as for the representative consumer and equal to a gross real interest rate.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0003684042000191129
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 11 ()
Pages: 1225-1232

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Handle: RePEc:taf:applec:v:36:y:2004:i:11:p:1225-1232
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  1. Reinhart, Carmen & Ogaki, Masao, 1995. "Measuring intertemporal substitution: The role of durable goods," MPRA Paper 13690, University Library of Munich, Germany.
  2. Attanasio, Orazio P & Weber, Guglielmo, 1989. "Intertemporal Substitution, Risk Aversion and the Euler Equation for Consumption," Economic Journal, Royal Economic Society, vol. 99(395), pages 59-73, Supplemen.
  3. Otto, Glenn D. & Voss, Graham M., 1998. "Is public capital provision efficient?," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 47-66, June.
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