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Output Dynamics, Technology, and Public Investment

  • 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)

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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File URL: http://icepp.gsu.edu/files/2015/03/ispwp1024.pdf
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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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Web page: http://aysps.gsu.edu/isp/index.html

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  1. Judd, Kenneth L., 1982. "An alternative to steady-state comparisons in perfect foresight models," Economics Letters, Elsevier, vol. 10(1-2), pages 55-59.
  2. 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.
  3. 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 628-52, Part II, .
  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. Robert S. Chirinko, 2008. "รณ: The Long And Short Of It," CESifo Working Paper Series 2234, CESifo Group Munich.
  6. 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.
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