Make America Great: Long-Run Impacts of Short-Run Public Investment

62 Pages Posted: 14 Jun 2017 Last revised: 23 Nov 2018

See all articles by Alexandr Kopytov

Alexandr Kopytov

University of Pennsylvania, The Wharton School

Haotian Xiang

Peking University - Department of Finance

Date Written: September 21, 2018

Abstract

We document S-shaped dynamics of the US economy associated with the construction of the Interstate Highway System in the 1960s. We then propose a business cycle model with two steady states arising due to productive public capital and production non-convexities. Small-scale short-run public investment programs generate transitory responses while large-scale ones can produce long-run impacts. Our quantitative analysis highlights the critical role played by public investment in explaining the economic dynamics around the 1960s. However, it casts doubt on the efficiency of a large public investment expansion in the post-Great Recession era.

Keywords: Public Investment, Nonlinear Dynamics, Business Cycles, Multiple Steady States

JEL Classification: E32, E62, H54

Suggested Citation

Kopytov, Alexandr and Xiang, Haotian, Make America Great: Long-Run Impacts of Short-Run Public Investment (September 21, 2018). Available at SSRN: https://ssrn.com/abstract=2985782 or http://dx.doi.org/10.2139/ssrn.2985782

Alexandr Kopytov

University of Pennsylvania, The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

Haotian Xiang (Contact Author)

Peking University - Department of Finance ( email )

Beijing
China

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