Optimal fiscal policy, public capital, and the productivity slowdown

This paper develops a quantitative theoretical model for the optimal provision of public capital. We show that the ratio of public to private capital in the US economy since 1925 evolves in a manner that is broadly consistent with an optimal transition path derived from a simple growth model. The model is used to quantify the conditions under which an increase in the stock of public capital is desirable and to investigate the degree to which nonoptimal fiscal policies can account for the US productivity slowdown. (C) 1998 Elsevier Science B.V. All rights reserved.