Revisiting the optimal stationary public investment policy in endogenous growth economies
- Autores: Gustavo A. Marrero
- Localización: Documentos de Trabajo (ICAE), ISSN-e 2341-2356, Nº. 9, 2005, 25 págs.
- Idioma: inglés
- Enlaces
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Resumen
One strand of the literature on endogenous growth concerns models in which pub- lic infrastructure a¿ects the private production process. A puzzle in this literature is that observed public investment-to-output ratios for developed economies tend to fall short of theoretical model-based optimal ratios. We reexamine the optimal choice of public investment in a more general and plausible framework, which allows for a gradual transition between di¿erent steady states, a lower depreciation rate for public capital than for private capital, an elasticity of intertemporal substitution that di¿ers from unity and the need to .nance a non-trivial share of public services in output in each period. Given other fundamentals in the economy, we show that the optimal public investment-to-output ratio is smaller for low-growth economies, for economies populated by consumers with low preferences for substituting consumption intertem- porally and when public capital is durable. Moreover, for a calibrated economy, we show that a combination of these factors solves the public investment puzzle.
