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Output and Employment Effects of Public Capital

Author: DAVID ALAN ASCHAUER
Published in PFM, Vol. 1 No. 2

This paper develops a two-equation model linking public capital to
employment and output growth. The basic innovation is that the
relationship between public capital and economic growth is non-linear,
which allows an estimate of the growth-maximizing level of public capital
(relative to private capital). The model is empirically implemented using a
variety of estimation procedures with data for the 48 contiguous United
States over the period from 1970 to 1990. Some of the more significant
findings of the paper include: generally positive effects of public capital on
economic growth (both in terms of output and employment); an estimated
value of the growth-maximizing public capital stock between 50 and 70
percent of the private capital stock; negative effects of public debt and taxes
on economic growth; somewhat higher growth effects from public capital in
the 1980s than the 1970s; and somewhat larger growth effects from public
capital in the Snowbelt than in the Sunbelt.

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