Showing papers by "Daniel McFadden published in 1972"

Criteria for Public Investment: Comment

Abstract: Two countries, Marglina and Mishana, are identical in all respects except for differing institutional constraints on government behavior.1 In Marglina, the government is barred from direct operation of traditionally private production activities (although such processes may be acquired by internal financing within legitimate government enterprises). In Mishana, the government may, at the margin, directly operate the traditionally private activities. The mix of public and private ownership of productive resources may influence the effective rate of savings in either economy, since government savings rates may be set higher than private ones. The criterion for public investment in Marglina must consequently weigh both the direct productivity of the investment alternatives and the effect of the public-private mix on savings and growth. In Mishana, on the other hand, the decision on the public-private mix can be separated from the choice of investment alternatives. As a result, Mishana's criterion for choice among investment alternatives will reduce to a comparison of their direct productivities. A second criterion will determine whether public investment is beneficial. In this note, a general procedure is outlined for determining criteria for public investment in simple "linear" economies like Marglina and Mishana. Using this procedure, we find the criteria for public investment influenced by the method of finance, with an "income" tax being more favorable to public investment than a "wealth" tax.2 For Marglina, the