Output and Employment Effects of Public Capital

Abstract

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.