A PHASED INCREASE IN THE UNITED-STATES INVESTMENT RATE - SACRIFICE TIMES, T-YEAR GAINS, AND INVESTMENT RATE RETURNS

We simulate a phased increase in the U.S. investment rate using a tran slog production function with technical progress (disembodied and/or e mbodied). We assume there will be an absorption lag implying that fact ors are underutilized during the transition to a higher investment rat e. We find that the ''sacrifice time'' (the time that elapses until co nsumption surpasses the value it would have had under the initial inve stment rate) is roughly nine years. Across alternative specifications, phase-in periods, and absorption lags, the sacrifice time varies from seven to 13 years, and is insensitive to the percentage increase in t he investment rate. With a three-year phase-in of a 20 percent increas e in the investment rate with a one-year absorption lag, the average ' 'decade gain'' in output (the percentage gain at the end of a decade) is roughly 4 percent; the decade gain in consumption, 0 percent; the f ive-decade gain, 10 percent in output and 6 percent in consumption; an d the ''investment rate return'' (the internal rate of return on a per manent increase in the investment rate), 13 percent.