Public capital and the labor income share

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dc.contributor.authorBom, Pedro
dc.contributor.authorGoti Elordi, Aitor
dc.date.accessioned2026-03-25T09:33:45Z
dc.date.available2026-03-25T09:33:45Z
dc.date.issued2018-10-26
dc.date.updated2026-03-25T09:33:45Z
dc.description.abstractThe decline of the labor share of income over the last few decades has been documented for many developed economies. A declining labor share is associated with rising income inequality, which raises obvious economic and social concerns. Although several explanations for this fact have been provided in the literature, they usually rely on elastic substitution between private capital and labor, which is generally not supported by the empirical literature.We argue in this paper that the fall in the labor share is potentially associated with the decline in public investment ratios, which have also been observed in most developed economies in the last few decades. We use a calibrated small-scale macroeconomic model to show how a negative public investment shock can have a sizeable negative effect on the labor share. Two assumptions are key in this result: that public capital directly augments private capital in production and that the elasticity of substitution between private capital and labor is smaller than one. We argue that both assumptions are plausible in practice. Our results suggest that, to promote long-run sustainable and inclusive growth, governments should increase the fraction of output devoted to public investment.en
dc.description.sponsorshipFunded by University–Company call of the Basque Government, project number UE2016-10en
dc.identifier.citationBom, P. R. D., & Goti, A. (2018). Public capital and the labor income share. Sustainability (Switzerland), 10(11). https://doi.org/10.3390/SU10113895
dc.identifier.doi10.3390/SU10113895
dc.identifier.eissn2071-1050
dc.identifier.urihttps://hdl.handle.net/20.500.14454/5555
dc.language.isoeng
dc.publisherMDPI
dc.rights© 2018 by the authors
dc.subject.otherEconomic efficiency
dc.subject.otherEconomic equity
dc.subject.otherInclusive growth
dc.subject.otherInequality
dc.subject.otherLabor share
dc.subject.otherPublic capital
dc.subject.otherPublic capital externalities
dc.subject.otherPublic investment
dc.titlePublic capital and the labor income shareen
dc.typejournal article
dcterms.accessRightsopen access
oaire.citation.issue11
oaire.citation.titleSustainability (Switzerland)
oaire.citation.volume10
oaire.licenseConditionhttps://creativecommons.org/licenses/by/4.0/
oaire.versionVoR
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