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Governmental activity and private capital adjustment

  • Ingrid Ott

    ()

    (Institute of Economics, University of Lüneburg)

  • Susanne Soretz

    ()

    (Department Growth and Distribution, University of Hanover)

We analyze within a dynamic model how rms decide on capital investment if the accompanying adjustment costs are a function of governmental activity. The government provides a public input and decides on the degree of rivalry. The productive public input enhances private capital productivity and reduces adjustment costs. We derive the equilibrium in which capital and investment ratio are both constant, carry out comparative dynamic analysis and discuss the model's policy implications. Increasing the amount of the public input unequivocally spurs capital investment whereas the result becomes ambiguous with respect to the impact of rivalry. Since a reduction in congestion increases the individually available amount of the public input, crowding out effects may lead to a reduction in the equilibrium capital stock. Most of the analysis is conducted for general production functions, although the case of CES technology is also considered.

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Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 26.

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Length: 27 pages
Date of creation: 13 Mar 2006
Date of revision:
Handle: RePEc:lue:wpaper:26
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  1. Joachim Wagner, 2005. "Nascent and Infant Entrepreneurs in Germany. Evidence from the Regional Entrepreneurship Monitor (REM)," Working Paper Series in Economics 1, University of Lüneburg, Institute of Economics.
  2. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  3. Julia K. Thomas, 2002. "Is Lumpy Investment Relevant for the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 508-534, June.
  4. Turnovsky, Stephen J., 1999. "Productive Government Expenditure In A Stochastically Growing Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 3(04), pages 544-570, December.
  5. Maik Heinemann & Christiane Clemens, 2005. "On the Effects of Redistribution on Growth and Entrepreneurial Risk-Taking," Computing in Economics and Finance 2005 275, Society for Computational Economics.
  6. Wagner, Joachim, 2005. "Exports and Productivity : A survey of the evidence from firm level data," HWWA Discussion Papers 319, Hamburg Institute of International Economics (HWWA).
  7. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  8. Schnabel, Claus & Wagner, Joachim, 2005. "Who Are the Workers Who Never Joined a Union? Empirical Evidence from Germany," IZA Discussion Papers 1658, Institute for the Study of Labor (IZA).
  9. Turnovsky, Stephen J., 1999. "On the role of government in a stochastically growing open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 23(5-6), pages 873-908, April.
  10. Theo S Eicher & Stephen Turnovsky, 1998. "Scale, Congestion, and Growth," Discussion Papers in Economics at the University of Washington 0071, Department of Economics at the University of Washington.
  11. Joachim Wagner & Thorsten Schank & Claus Schnabel & John T. Addison, 2006. "Works Councils, Labor Productivity and Plant Heterogeneity: First Evidence from Quantile Regressions," GEMF Working Papers 2006-03, GEMF - Faculdade de Economia, Universidade de Coimbra.
  12. Joachim Wagner, 2006. "International Firm Activities and Innovation: Evidence from Knowledge Production Functions for German Firms," Working Paper Series in Economics 25, University of Lüneburg, Institute of Economics.
  13. John T. Addison & Claus Schnabel & Joachim Wagner, 2006. "The (Parlous) State of German Unions," Working Paper Series in Economics 23, University of Lüneburg, Institute of Economics.
  14. Ingrid Ott & Susanne Soretz, 2006. "Nachhaltige Entwicklung durch endogeneUmweltwahrnehmung," Working Paper Series in Economics 24, University of Lüneburg, Institute of Economics.
  15. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  16. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
  17. Joachim Wagner, 2005. "Der Noth gehorchend, nicht dem eignen Trieb Nascent Necessity and Opportunity Entrepreneurs in Germany Evidence from the Regional Entrepreneurship Monitor (REM)," Working Paper Series in Economics 10, University of Lüneburg, Institute of Economics.
  18. Ingrid Ott & Stephen J. Turnovsky, 2005. "Excludable and Non-excludable Public Inputs: Consequences for Economic Growth," Working Paper Series in Economics 2, University of Lüneburg, Institute of Economics.
  19. repec:cup:macdyn:v:3:y:1999:i:4:p:544-70 is not listed on IDEAS
  20. Glomm, Gerhard & Ravikumar, B., 1994. "Public investment in infrastructure in a simple growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1173-1187, November.
  21. Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," CEPR Discussion Papers 4458, C.E.P.R. Discussion Papers.
  22. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
  23. Edwards, John H. Y., 1990. "Congestion function specification and the "publicness" of local public goods," Journal of Urban Economics, Elsevier, vol. 27(1), pages 80-96, January.
  24. Gabriel Desgranges & Maik Heinemann, 2005. "Strongly rational expectations equilibria with endogenous acquisition of information," Working Paper Series in Economics 9, University of Lüneburg, Institute of Economics.
  25. Joachim Wagner, 2005. "German Works Councils and Productivity: First Evidence from a Nonparametric Test," Working Paper Series in Economics 14, University of Lüneburg, Institute of Economics.
  26. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
  27. Ricardo J. Caballero, 1997. "Aggregate Investment," NBER Working Papers 6264, National Bureau of Economic Research, Inc.
  28. Fisher, Walter H & Turnovsky, Stephen J, 1998. "Public Investment, Congestion, and Private Capital Accumulation," Economic Journal, Royal Economic Society, vol. 108(447), pages 399-413, March.
  29. Turnovsky, Stephen J, 1996. "Fiscal Policy, Adjustment Costs, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 48(3), pages 361-81, July.
  30. Lückgen, Ingo & Oberschachtsiek, Dirk & Sternberg, Rolf & Wagner, Joachim, 2004. "Nascent Entrepreneurs in German Regions: Evidence from the Regional Entrepreneurship Monitor (REM)," IZA Discussion Papers 1394, Institute for the Study of Labor (IZA).
  31. Joachim Wagner, 2006. "Politikrelevante Folgerungen aus Analysen mit wirtschaftsstatistischen Einzeldaten der Amtlichen Statistik," Working Paper Series in Economics 16, University of Lüneburg, Institute of Economics.
  32. Turnovsky, Stephen J, 2000. " Government Policy in a Stochastic Growth Model with Elastic Labor Supply," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 389-433.
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