
Series: Working Papers. 2501.
Author: Henrique S. Basso, Myroslav Pidkuyko and Omar Rachedi.
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Abstract
With multiple types of public capital, the aggregate implications of public investment crucially depend on the sum of the output elasticities of public capital across types. Abstracting from this heterogeneity and considering a single homogeneous type underestimates the effects of public investment. This is because the output elasticity of aggregate public capital is biased: it does not coincide with the sum of output elasticities of the different types. A quantitative model with public investment in equipment, structures, and intangibles implies substantial negative bias. Heterogeneity in public investment roughly doubles the long-run fiscal multiplier and optimal scale of public investment.