An Analysis of the Optimal Provision of Public Infrastructure: A Computational Model Using Mexican Data

February 1, 1996

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Andrew Feltenstein, and Jiming Ha. An Analysis of the Optimal Provision of Public Infrastructure: A Computational Model Using Mexican Data, (USA: International Monetary Fund, 1996) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

An intertemporal general equilibrium model is used to examine infrastructure effects on the Mexican national income. Production functions are estimated for the major sectors of the economy in which sectoral output depends on inputs of capital and labor, as well as the stocks of the public infrastructure. The analysis indicates that despite high estimated output elasticities with respect to public infrastructure, increased expenditure on infrastructure has rapidly decreasing benefits. Some benefits could be achieved by modest increases in capital expenditures, although at the cost of significantly higher inflation and real interest rates. The increase in real interest rates causes these benefits to be greatly reduced.

Subject: Budget planning and preparation, Expenditure, Government debt management, Infrastructure, Labor, National accounts, Public financial management (PFM)

Keywords: Budget deficit, Budget planning and preparation, Cobb-Douglas production function, Depreciación y Formación de capital del Banco de México, East Asia, Government debt management, Inflation rate, Infrastructure, Maximization problem, Returns to scale, South Asia, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/013
Stock No:

WPIEA0131996
ISBN:

9781451842968
ISSN:

1018-5941

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