Productive government investment and the labor share

A recent body of literature has sought to determine the causes global decline labor share. We study role played by government investment—which also fallen in many advanced economies over past few decades—in share decline. first establish a theoretical link between investment and using general equilibrium macroeconomic model, where capital enters production function factor-augmenting fashion. Our analytic results show that permanent cut steady-state if elasticity substitution private is less than one public augments capital. then empirical relationship these variables two panel datasets covering 79 countries, both developing developed, period 1970–2017. Using system GMM estimator, we find positive statistically significant association economies; for however, no effect.