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Paper #1685

Technological change and the decline of public investment
Davide Debortoli i Pedro Gomes
Juny 2014
Over the past 40 years public investment has declined in most developed countries. This paper argues that such pattern can be the consequence of investment-specific technological progress. Public investment, mostly on infrastructures, experienced a slower rate of innovation than private investment, composed primarily by equipment and software. Within a simple neoclassical growth model with a public sector, we show that such type of technological progress reduces the incentives to invest in public capital, and accounts for 80 percent of the observed decline. The implied co-movements of other fiscal instruments are also consistent with observed trends.
Paraules clau:
Public Investment; investment-specific technological change; public capital; profit tax; labor tax
Codis JEL:
E62; H21; H54
Àrea de Recerca:
Macroeconomia i Economia Internacional

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