OPTIMAL FISCAL-POLICY, PUBLIC CAPITAL, AND THE PRODUCTIVITY SLOWDOWN

This paper develops a quantitative theoretical model for the optimal p rovision of public capital. We show that the ratio of public to privat e capital in the US economy since 1925 evolves in a manner that is bro adly 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 invest igate the degree to which nonoptimal fiscal policies can account for t he US productivity slowdown. (C) 1998 Elsevier Science B.V. All rights reserved.