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Article
An Active Public Investment Rule and the Downsizing Experience in the US: 1960-2000
Topics in Macroeconomics (2010)
  • Gustavo A. Marrero
Abstract
We use a simple growth model with public capital to examine the evolution of the US macroeconomy and to discuss the implications of the public infrastructure decline for the productivity slowdown over the last four decades. The main difference of the model to other papers in the related literature is that public investment is actively managed as a non-linear function of the state of the economy, and is not a constant fraction of output in every period. The active management policy delivers transition dynamics that reproduce the public capital downsizing episode, but that accounts for only a minor fraction of the observed productivity slowdown. However, taking into consideration higher rates of returns to public capital or the reallocation of public resources from productive to unproductive expenditures, which is consistent with the US experience in the 70s and 80s, the model simulation accounts for most of the observed productivity slowdown.
Keywords
  • Public capital,
  • active policy rules,
  • downsizing,
  • productivity slowdown,
  • endogenous growth.
Publication Date
April 6, 2010
Citation Information
Gustavo A. Marrero. "An Active Public Investment Rule and the Downsizing Experience in the US: 1960-2000" Topics in Macroeconomics Vol. 5 Iss. 1 (2010)
Available at: http://works.bepress.com/gustavo_marrero/1/