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Characterizing the Optimal Composition of Government Expenditures

  • Rafaela Mª Pérez Sánchez


    (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. Fundamentos Análisis Económico I.)

This paper extends the neoclassical growth model with productive public capital by including an infrastructure efficiency index, which is assumed to depend on a public choice variable, in particular, the share of public spending allocated to productive public consumption. A golden rule for the allocation of public expenditure between productive consumption and investment is specified. Under this framework, the observed path for the stock of infrastructures and the proposed efficiency index in the US economy during the last fifty years have been close to optimal: a lower stock of infrastructures has been accumulated, but it has been used more efficiently.

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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0409.

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Length: 29 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:ucm:doicae:0409
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  1. David Alan Aschauer, 1998. "Public Capital and Economic Growth: Issues of Quantity, Finance, and Efficiency," Economics Working Paper Archive wp_233, Levy Economics Institute.
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  8. Kevin J. Lansing, 1998. "Optimal Fiscal Policy in a Business Cycle Model with Public Capital," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 337-364, May.
  9. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
  10. Steven P. Cassou & Kevin J. Lansing, 1995. "Optimal fiscal policy, public capital, and the productivity slowdown," Working Paper 9509, Federal Reserve Bank of Cleveland.
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  13. William Easterly & Sergio Rebelo, 1993. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc.
  14. Ambler, Steve & Paquet, Alain, 1996. "Fiscal spending shocks, endogenous government spending, and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 237-256.
  15. Charles R. Hulten, 1996. "Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have," NBER Working Papers 5847, National Bureau of Economic Research, Inc.
  16. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  17. Mary Finn, 1993. "Is all government capital productive?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 53-80.
  18. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  19. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  20. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
  21. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  22. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  23. Ratner, Jonathan B., 1983. "Government capital and the production function for U.S. private output," Economics Letters, Elsevier, vol. 13(2-3), pages 213-217.
  24. Lau, Sau-Him Paul, 1995. "Welfare-maximizing vs. growth-maximizing shares of government investment and consumption," Economics Letters, Elsevier, vol. 47(3-4), pages 351-359, March.
  25. Garcia-Mila, Teresa & McGuire, Therese J., 1992. "The contribution of publicly provided inputs to states' economies," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 229-241, June.
  26. Futagami, Koichi & Morita, Yuichi & Shibata, Akihisa, 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 607-25, December.
  27. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
  28. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  29. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
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