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Indeed, the private capitaldepreciation rate can only affect the optimal policy through this channel.
The latter is conceptualised as the use of sink capacity in order for it to be equivalent to capitaldepreciation.
Figure 3 then summarizes the influence of variable labor utilization and capitaldepreciation rates, when (1 - s ) < s .
This technology-related result depends on the assumption that effort not only increases labor productivity but also decreases the rate of capitaldepreciation.
The optimal ratio rises with the public capitaldepreciation rate.
Finally, the elasticity of intertemporal substitution and the public capitaldepreciation rate have positive and important effects on the optimal public investment-to-output ratio.
We set = 0.64 (implying an annual rate of discount of 0.97) and = 0.71 (implying an annual rate of capitaldepreciation of 7%).
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