Omar Rachedi (ESADE) - Opening the Black Box: Aggregate Implications of Public Investment Heterogeneity

Research seminars

Research Seminar - Omar Rachedi (ESADE) -   Opening the Black Box: Aggregate Implications of Public Investment Heterogeneity

Co-authors: Henrique S. Basso (Banco de España and CEMFI) and Myroslav Pidkuyko (Banco de España)

Abstract
With multiple public capital types, the aggregate implications of public investment crucially depend on the sum of the output elasticities of public capital across types. Abstracting from this heterogeneity and considering a single homogeneous type misestimates the effects of public investment. This is because the output elasticity of aggregate public capital is biased: it does not coincide with the sum of the types’ output elasticities. A quantitative model with public investment in equipment, structures, and intangibles implies substantial negative bias. Heterogeneity in public investment roughly doubles the long-run fiscal multiplier and optimal public investment.

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