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Public Investment and Supply

Author

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  • Paula Bejarano Carbo

  • Benjamin Caswell

  • Stephen Millard

Abstract

This paper investigates the link between public investment and output in the United Kingdom. It estimates a medium‐scale neoclassical growth model in order to gauge the output elasticity of public capital for the UK economy, finding a posterior mean of 0.112 for the elasticity, indicating that public capital has a positive and economically meaningful effect on output in the UK. Using the results from the estimation exercise, it finds that the welfare‐maximising output share of public investment is between 5.9 and 6.1 per cent, above the historical average of around 3.5 per cent. This finding, though interpretable as a reasonable upper bound, suggests that the United Kingdom has scope to benefit from an increase in productive public investment. Results suggest that further work in estimation of the output elasticity of public capital may be the most fruitful avenue for future research.

Suggested Citation

  • Paula Bejarano Carbo & Benjamin Caswell & Stephen Millard, 2026. "Public Investment and Supply," National Institute of Economic and Social Research (NIESR) Discussion Papers 580, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:580
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