This allows for state-specific and temporal effects while maintaining a focus on the long run. Here we summarize the basic results and conclusions. The relationship between public capital and economic growth is nonlinear. The estimated growth-maximizing public capital stock is approximately 61 percent of the private capital stock. The level of total government spending is higher than the estimated growth-maximizing ratio to private capital of 4 percent.
Investment is only a small portion of total government spending.
The sample average ratio is 14 percent, suggesting that for the average state a one standard deviation increase in government spending would decrease output growth per worker by 1.3 percent per year. Core public capital may have a larger impact than other public capital. Growth-maximizing values are estimated to be 44 percent for core and 31 for other, with actual average values around 27 and 18 percent, respectively. The data indicate a deficient level of core public capital for 94 of the 96 observations and a deficient level of other public capital for 90 of the 96 observations. The magnitude of the growth effects of public capital depends on the output elasticity of public capital and on how far its value diverges from the optimizing level of 61 percent.