David Alan Aschauer (1989). Is public expenditure productive? • This paper considers the relationship between aggregate productivity and stock and flow government-spending variables. The empirical results indicate that: • (i) the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending, • (ii) military capital bears little relation to productivity, and • (iii) a 'core' infrastructure of streets, highways, airports, mass transit, sewers, water systems, etc. has most explanatory power for productivity.
Theoretical framework • The analysis is centered on the aggregate production technology: • Yt = At*f(Nt, Kt, Gt), • Assuming a generalized Cobb-Douglas form for the production technology yields the logarithmic version: • yt = at + e. N * nt + e. K * kt + e. G* gt • Expression for the productivity of private capital: • yt - kt=at+e. N*(nt-kt) + e. G*(gt-kt) • Expression for total factor productivity: • pt = at+ e. G*(gt - it).
Empirical analysis • The empirical analysis focuses on the period 1949 to 1985 and utilizes annual data. • The general equations to be estimated are given as • yt-kt=ao+a 1*t+a 2*(nt-kt)+a 3*(gt-kt)+a 4*cut+ut • and • pt = bo + b 1 * t + b 2 * (gt - it) + b 3*cut + et
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