Working PaperFirst publicationPublished version DOI: 10.48548/pubdata-1202

Governmental activity and private capital investment

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Chronological data

Date of first publication2006-05-10
Date of publication in PubData 2024-08-23

Language of the resource

English

Related external resources

Part of ISSN: 1860-5508
Working Paper Series in Economics

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Other contributors

Abstract

We analyze within a dynamic model how firms decide on capital investment if the accompanying adjustment costs are a function of governmental activity. The government provides a public input and decides on the degree of rivalry. The productive public input enhances private capital productivity and reduces adjustment costs. We derive the equilibrium in which capital and investment ratio are both constant, carry out comparative dynamic analysis and discuss the model’s policy implications. Increasing the amount of the public input unequivocally spurs capital investment whereas the result becomes ambiguous with respect to the impact of rivalry. Since a reduction in congestion increases the individually available amount of the public input, crowding out effects may lead to a reduction in the equilibrium capital stock. Most of the analysis is conducted for general production functions, although the case of CES technology is also considered.

Keywords

Government; Activity; Adjustment; Costs; Politisches Handeln; Anpassung; Kosten

Number of the series contribution

26

More information

DDC

340 :: Recht
336 :: Öffentliche Finanzen

Creation Context

Research