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with Davide Debortoli
with Davide Debortoli
Over the past 40 years public investment has declined in most developed countries. This paper argues that such pattern can be the consequence of investment-specific technological progress. Public investment, mostly on infrastructures, experienced a slower rate of innovation than private investment, composed primarily by equipment and software. Within a simple neoclassical growth model with a public sector, we show that such type of technological progress reduces the incentives to invest in public capital, and accounts for 80 percent of the observed decline. The implied co-movements of other fiscal instruments are also consistent with observed trends.
JEL Classification: E62; H21; H54.
Keywords: Profit tax; Labor tax, Public Capital; Public Investment; Investment-specific technological change.
R&R
Quantitative Economics
2015
with Hernan Seoane
with Hernan Seoane
We show that, in a financially constrained environment, relative to an active fiscal--passive monetary policy regime, an active monetary--passive fiscal policy amplifies technology shocks, neutralizes financial shocks, and mitigates the expansionary effects of fiscal shocks through a ``debt deflation" and ``real interest rate" channels. Several features of the data suggest that, during the last decade, the United States implemented an active fiscal--passive monetary policy, while the Euro area implemented an active monetary--passive fiscal policy, implying that the distinct post-crisis dynamics of the United States and the Euro area can be rationalized through different fiscal and monetary policy mixes.
JEL Classification: E62, E63, E32, E44.
Keywords: Fiscal policy, monetary policy, monetary-fiscal policy interactions, financial frictions
Published, European Economic Review, 2024
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