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Intangible Capital: Complement or Substitute in the Creation of Public Goods?

Diskussionspapiere extern

Alexander Schiersch, Martin Gornig

Valencia: Instituto Valenciano de Investigaciones Económicas, 2016, 25 S.
(SPINTAN Working Paper Series ; 15)


This paper tests whether intangible capital is a substitute or, to some degree, a complement to standard inputs in the production process. The analysis is conducted for public sectors in which governmental institutions are directly responsible for both, efficiently producing public goods as well as for the investment in new production factors. Knowing the substitutability of inputs is important for achieving the best possible result for the invested money, inter alia, when designing stimulus programs. The analysis is carried out using threeinput two-level nested value added CES production functions. The analysis reveals that intangible capital is just weakly substitutable with other inputs. This result implies that any investment plan or any stimulus program should not just focus on tangible assets, but also needs to include investments in intangibles in order to achieve the maximum output and to efficiently use public money. It also follows that investment programs for tangible assets should not be undermined by austerity programs focused on intangible assets.

Alexander Schiersch

Research Associate in the Firms and Markets Department

Martin Gornig

Research Director in the Firms and Markets Department

Topics: Business cycles