Department of Economics and Business - Universitat Pompeu Fabra

Title:: Technological change and the decline of public investment
Authors:: Davide Debortoli and Pedro Gomes
Date:: June 2014
Abstract:: 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.
Keywords:: Public Investment; investment-specific technological change; public capital; profit tax; labor tax
JEL codes:: E62; H21; H54
Area of Research:: Macroeconomics and International Economics

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