Private profit and public capital

Abstract

This paper investigates the contribution of public capital services to the rate of profit. A profit rate is derived from a homogeneous production function with labor, public and private capital inputs. The data (for the U.S. nonfinancial corporate sector, 1958–1988) indicates a trend decline in the profit rate. Regression results show a significantly positive share of profits attributable to public capital, especially the state and local component; constant returns to scale in production; and a falling marginal productivity of public capital in the last decade. This study implies that increasing public investment may help to restore the profit rate and to raise output.