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Opening the black box: aggregate implications of public investment heterogeneity

Author

Listed:
  • Henrique S. Basso

    (BANCO DE ESPAÑA)

  • Myroslav Pidkuyko

    (BANCO DE ESPAÑA)

  • Omar Rachedi

    (ESADE, UNIVERSITAT RAMON LLULL)

Abstract

With multiple types of public capital, the aggregate implications of public investment crucially depend on the sum of the output elasticities of public capital across types. Abstracting from this heterogeneity and considering a single homogeneous type underestimates the effects of public investment. This is because the output elasticity of aggregate public capital is biased: it does not coincide with the sum of output elasticities of the different types. A quantitative model with public investment in equipment, structures, and intangibles implies substantial negative bias. Heterogeneity in public investment roughly doubles the long-run fiscal multiplier and optimal scale of public investment.

Suggested Citation

  • Henrique S. Basso & Myroslav Pidkuyko & Omar Rachedi, 2024. "Opening the black box: aggregate implications of public investment heterogeneity," Working Papers 2501, Banco de España.
    • Handle: RePEc:bde:wpaper:2501
    DOI: https://doi.org/10.53479/38897
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    More about this item

    Keywords

    public capital; intellectual property products; equipment; structures; fiscal multiplier;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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