On the effects of public investment on private investment: What crowds in what?

This article provides an empirical investigation of the effects of public i nvestment on the evolution of private investment in the United States. It i s based on the impulse response analysis associated with vector auto-regres sive (VAR) estimates. The empirical results suggest that at the aggregate l evel, public investment crowds in private investment. Disaggregating privat e investment shows that the crowding-in effect of public investment is stro ng for equipment and only marginal for structures. This crowding-in effect on private equipment is particularly strong in the cases of industrial equi pment and transportation equipment. In fact, public investment marginally c rowds out private investment in information equipment A final look at the e ffects of different types of public investment on the different types of pr ivate investment suggests that in about one third of the cases, public inve stment variables crowd out private sector variables. More important, the ag gregate results often hide a wide diversity of effects.