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Structural Breaks in Public Infrastructure Investment in the U.S

Author

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  • Alfredo M. Pereira

    () (Department of Economics, College of William and Mary)

  • Martin B. Schmidt

    () (Department of Economics, College of William and Mary)

Abstract

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.

Suggested Citation

  • Alfredo M. Pereira & Martin B. Schmidt, 2007. "Structural Breaks in Public Infrastructure Investment in the U.S," Working Papers 55, Department of Economics, College of William and Mary.
  • Handle: RePEc:cwm:wpaper:55
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    File URL: http://economics.wm.edu/wp/cwm_wp55rev.pdf
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    References listed on IDEAS

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    1. 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.
    2. Christophe Kamps, 2005. "The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 533-558, August.
    3. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    4. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    5. Jushan Bai & Robin L. Lumsdaine & James H. Stock, 1998. "Testing For and Dating Common Breaks in Multivariate Time Series," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 395-432.
    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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    Cited by:

    1. Alfredo M. Pereira & Jorge M. Andraz, 2008. "On the Regional Incidence of Public Investment in Highways in the USA," Working Papers 70, Department of Economics, College of William and Mary, revised 15 Sep 2010.

    More about this item

    Keywords

    public investment; infrastructure; structural breaks; VAR modeling;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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