Microeconomic Effects of Public Investment: A Conceptual Study

ABSTRACT

We pose critical concerns about the relative importance of public versus private investment in economic growth, as measured by the growth of individual households and businesses. We examine how government spending affects consumer spending and business profitability under the assumption that public and private investment are perfectly complementary. We also bring up a significant issue about the implications of various methods of supporting public investment, such as tax revenue, bank borrowing, and seigniorage, to name a few. The study discusses how raising the share of public capital in the production function might affect utility- and profit-maximizing behaviour in the private and public sectors.

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