SOCIAL SECURITY INVESTMENT POLICY AND CAPITAL FORMATION

Large recent surpluses in the social security trust fund accounts provide the potential to increase overall national saving and capital formation. However, these surpluses instead have allowed politicians to increase the non-social security deficit and government consumption. Copyright 1992 Western Economic Association International.

Balanced growth and public capital: an empirical analysis

The balanced growth restrictions implied by the neoclassical growth model imply that output, the private capital stock and the public capital stock share the same stochastic trend. We analyse the postwar US data on real output, real private capital stock and real public capital stock and find that the balanced growth restrictions cannot be rejected by the data. Removing the common stochastic trend from each series allows the estimation of output elasticities that is free from the spurious regression problem. The results support Aschauer's (1989) claim that, at the margin, public capital is more productive than private capital.