Working Paper: CEPR ID: DP1479
Authors: George S. Alogoskoufis; Sarantis C. Kalyvitis
Abstract: This paper examines the effects of three alternative rules for public investment on output growth in a model with private and public capital. The rules considered are: (i) a fixed ratio of public capital to output; (ii) a fixed growth rate for public capital; and (iii) a fixed ratio of public investment to output. We find that all these rules are closely associated with the growth rate of output and generate endogenous growth. A permanent change in the policy rule implies a new long-run growth rate of output, but the economy will only gradually approach the new steady state due to adjustment costs in private capital accumulation.
Keywords: endogenous growth; public capital; private capital; adjustment costs
JEL Codes: H54; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fixed public capital to output ratio (H54) | growth rate determined by private capital formation (O40) |
| public capital to output ratio (H54) | private capital formation (E22) |
| fixed growth rate for public capital (H54) | growth rate in steady state (O40) |
| public capital formation (H54) | growth rate in steady state (O40) |
| public investment to output ratio (H54) | growth dynamics (O41) |
| public capital accumulation process (H54) | growth dynamics (O41) |
| efficiency of public capital use (H54) | growth dynamics (O41) |