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Output Dynamics, Technology, and Public Investment

Author

Listed:
  • 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.

Suggested Citation

  • Pedro R. D. Bom & Ben J. Heijdra & Jenny Ligthart, 2010. "Output Dynamics, Technology, and Public Investment," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1024, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:ays:ispwps:paper1024
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    References listed on IDEAS

    as
    1. Rioja, Felix K., 1999. "Productiveness and welfare implications of public infrastructure: a dynamic two-sector general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 58(2), pages 387-404, April.
    2. Michael J. Boskin & Lawrence J. Lau, 2000. "Generalized Solow-Neutral Technical Progress and Postwar Economic Growth," NBER Working Papers 8023, National Bureau of Economic Research, Inc.
    3. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
    4. James Feehan, 1998. "Optimal Provision of Hicksian Public Inputs," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 693-707, August.
    5. Uzawa, H, 1969. "Time Preference and the Penrose Effect in a Two-Class Model of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 77(4), pages 628-652, Part II, .
    6. Otto, Glenn D. & Voss, Graham M., 1998. "Is public capital provision efficient?," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 47-66, June.
    7. Judd, Kenneth L., 1982. "An alternative to steady-state comparisons in perfect foresight models," Economics Letters, Elsevier, vol. 10(1-2), pages 55-59.
    8. Robert S. Chirinko, 2008. "รณ: The Long And Short Of It," CESifo Working Paper Series 2234, CESifo Group Munich.
    9. Heijdra, Ben J. & Meijdam, Lex, 2002. "Public investment and intergenerational distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 707-735, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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