Series: Working Papers. 9501.
Author: Jorge Blázquez and Miguel Sebastián.
Topics: Quantitative methods | Economic situation | Productivity | General government | Wages.
Full document
Abstract
The literature on public investrnent highlights lhe relationship between public capital and total output, estimating aggregate production functions. Such a procedure biases the positive effect of public capital by ignoring the financial constraint, and lhus, lhe required resource reallocation.We consider both lhe production externality and lhe government budget constraint. This allows us to solve for lhe optimal stock of public capital. We show lhat technological criteria may lead to an oversized public capital stock, and for a specific range of technological parameters, it occurs even when a crowding-in effect takes place.