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Public Capital And Income Distribution: A Marriage Of Hicks & Newman-Read

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Executive Summary

This paper examines how publicly provided inputs could affect income distribution. By applying the Newman-Read production function-a generalized Cobb-Douglas production function-to Hicks's idea of the determinant of factor share, such usually complex dynamics remain analytically tractable. The paper shows that whether public capital has an effect on income distribution dynamics depends on its elasticity of substitution to private capital. If the elasticity of substitution of public capital to private capital is greater than unity, then an investment in public capital increases its relative income share and, hence, decreases the private capital share.

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