Resumen de Can public capital cause dual inflation?: The Spanish evidence
In this paper we built a simple two-sector model where public spending (or public capital) has a positive impact on productivity of both sectors. The main theoretical result, that is consistent with the traditional Balassa-Samuelson model, is that inflation might be affected by the evolution of public capital due to its impact on productivity. In fact, an increase in the stock of public capital can generate dual inflation if the elasticity of output to public capital is higher in the tradable sector. Finally, we use Spanish data to estimate the theoretical model. And we find that the empirical results back anecdotal evidence regarding Spanish dual inflation.
