Keywords: Investment, capital, productivity, economic measurement, economic growth.
Abstract: Business outlays on intangible assets are usually expensed in economic and financial
accounts. Following Hulten (1979), this paper develops an intertemporal framework
for measuring capital in which consumer utility maximization governs the
expenditures that are current consumption versus those that are capital investment.
This framework suggests that any business outlay that is intended to increase future
rather than current consumption should be treated as capital investment. Applying
this principle to newly developed estimates of business spending on intangibles, we
find that, by about the mid-1990s, business investment in intangible capital was as
large as business investment in traditional, tangible capital. Relative to official
measures, our framework portrays the U.S. economy as having had higher gross
private saving and, under plausible assumptions, fractionally higher average annual
rates of change in real output and labor productivity from 1995 to 2002.
Full paper (316 KB PDF)
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Last update: November 8, 2004