Output and Employment Effects of Public Capital

Studies that have examined the effect of public spending on economic growth have reported esmates for the marginal product of public capital that are well in excess of, equal to, and less than the marginal product of private capital. Not only does this wide range of estimates call for further examination, but several questions about such spending have been neglected. Does a permanent increase in public spending induce a permanent or temporary increase in economic growth? Is public capital sufficiently productive to increase the rate of economic growth? Does the method by which new (public) spending is financed have a larger negative effect on growth than any positive effect induced by the increase in spending itself? Visiting Scholar David Alan Aschauer, of Bates College, explores these issues, making use of state-level data to examine the static and dynamic effects of public capital spending on output and employment growth. (See also, Working Papers No. 189 and No. 191.)