Efficient Public Investment in a Model with Transition Dynamics

FRB Richmond Economic Quarterly, Vol. 89, No. 1, Winter 2003, pp. 33-50

18 Pages Posted: 5 Dec 2012

See all articles by Pierre-Daniel G. Sarte

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Jorge Soares

University of Delaware

Date Written: 2003

Abstract

In 2001, the U.S. government spent $290 billion on public investments spanning such diverse projects as highways, aircraft electronics, sewer and water systems, government buildings, and conservation. This amount represents roughly 3 percent of GDP and is comparable in size to net exports. The authors' study of the efficient provision of public investment reveals, contrary to previous work on this topic, that the efficient share of gross public investment in output is less than the public capital elasticity of output. Furthermore, this share depends importantly on underlying preferences and technology. Another finding is that the elasticity of final output with respect to government capital is likely to be low at less than 0.1.

Suggested Citation

Sarte, Pierre-Daniel and Soares, Jorge, Efficient Public Investment in a Model with Transition Dynamics (2003). FRB Richmond Economic Quarterly, Vol. 89, No. 1, Winter 2003, pp. 33-50. Available at SSRN: https://ssrn.com/abstract=2184925

Pierre-Daniel Sarte (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Jorge Soares

University of Delaware ( email )

Department of Economics
Purnell Hall Room 315
Newark, DE 19716
United States
(302) 831 1914 (Phone)
(302) 831 6968 (Fax)

HOME PAGE: http://udel.edu/~jsoares

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