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Structural Breaks in Public Infrastructure Investment in the U.S

  • Alfredo M. Pereira

    ()

    (Department of Economics, College of William and Mary)

  • Martin B. Schmidt

    ()

    (Department of Economics, College of William and Mary)

This paper investigates the possible existence and timing of structural breaks in public infrastructure investment in the US. Results are obtained using both the conventional Chow tests as well as the multivariate Bai, Lumsdaine and Stock tests which are more appropriate for finding breaks in the context of a VAR structure. All tests consider aggregate public investment as well as nine different disaggregated categories of public investment. In addition, multivariate tests include private output, employment, and investment, the variables usually considered in the literature. Empirical results suggest that a break in the mean of public investment occurred in the late 1970s or early 1980s. This is true at the aggregate level as well as for most types of public infrastructures. The measurement of the economic effects of public investment is a critical piece of information to understand the effects of any fiscal stimulus package. The empirical evidence in the literature is somewhat inconclusive at least partially because structural breaks have been largely ignored. We regard the evidence presented in this paper as the first step in the process of revisiting the analysis of the effects of such investments in a VAR framework while accounting for the presence of structural breaks.

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File URL: http://economics.wm.edu/wp/cwm_wp55rev.pdf
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Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 55.

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Length: 10 pages
Date of creation: 24 Aug 2007
Date of revision:
Handle: RePEc:cwm:wpaper:55
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  1. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  2. Christophe Kamps, 2004. "The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries," Kiel Working Papers 1224, Kiel Institute for the World Economy.
  3. Serena Ng & Timothy Vogelsang, 2002. "Analysis Of Vector Autoregressions In The Presence Of Shifts In Mean," Econometric Reviews, Taylor & Francis Journals, vol. 21(3), pages 353-381.
  4. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
  5. Bai, Jushan & Lumsdaine, Robin L & Stock, James H, 1998. "Testing for and Dating Common Breaks in Multivariate Time Series," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 395-432, July.
  6. Alfredo Pereira & Jorge Andraz, 2004. "Public highway spending and state spillovers in the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 11(12), pages 785-788.
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