Is public expenditure productive?

Abstract

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. The paper also suggests an important role for the net public capital stock in the 'productivity slowdown' of the last fifteen years.