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This paper analyzes the impact of public investment on the dynamics of private capital formation in an intertemporal optimizing market-clearing framework. The key feature characterizing the analysis is that the public good is treated as a durable capital good, subject to congestion. We show how in the presence of congestion the effect of government investment on private capital formation involves a tradeoff between the degree of substitution between private and public capital in production and the degree of congestion. Both lump-sum and distortionary tax financing are considered, with this tradeoff being tightened in the latter case.

AbstractPublic capital is sizable and its share in total capital is higher in poor countries. The standard development accounting approach does not distinguish it from private capital, ignoring its public good features. The goal of this paper is to measure public capital stocks for a wide range of countries, and then develop and implement a development accounting framework that explicitly includes its non-rival aspects. The paper finds that factors of production account for a significantly greater share of cross-country differences in output per worker compared to the standard framework. With both non-rivalry and congestion, the contribution of factors of production decreases.

This paper addresses the issue of whether and by how much public investment or publiccapital can enhance economic performance. In comparison with the literature on the subject,we apply many different methodologies to answer these questions. A VAR model (for France,Italy, Germany, the UK and the USA), a panel composed of 6 European countries (Austria,Belgium, France, Germany, Italy and the Netherlands) and a regional panel (French regions)are therefore estimated. Public investment is shown to be a significant determinant of output; this is also true for public capital but to a lesser extent than public investment with a VAR methodology. The size of the estimated coefficient is also more realistic than those obtained in the literature. This empirical result confirms that the focus of some economists onsafeguarding the level of public investment is not misplaced. The debate on the introduction of a "golden rule of public finance" in EMU is legitimate.

This paper addresses the issue of whether and by how much public investment or publiccapital can enhance economic performance. In comparison with the literature on the subject,we apply many different methodologies to answer these questions. A VAR model (for France,Italy, Germany, the UK and the USA), a panel composed of 6 European countries (Austria,Belgium, France, Germany, Italy and the Netherlands) and a regional panel (French regions)are therefore estimated. Public investment is shown to be a significant determinant of output; this is also true for public capital but to a lesser extent than public investment with a VAR methodology. The size of the estimated coefficient is also more realistic than those obtained in the literature. This empirical result confirms that the focus of some economists onsafeguarding the level of public investment is not misplaced. The debate on the introduction of a "golden rule of public finance" in EMU is legitimate.

Despite recents successes in stabilization and structural reform in many developing countries, the private investment response to date has been mixed, even among the strongest reformers. This disappointing result can be partly explained by the continued poor provision of public capital and services. The authors test this hypothesis using unique firm-level data on investment and provision of public infrastructure services. The results suggest that poor complementary public capital significantly reduces private investment. (InWent/DÜI)