Do government expenditures increase private sector productivity?

Purpose – To analyse productivity of public expenditures; especially to find out the effect of human capital investment on private sector productivity. Design/methodology/approach – Several measures of public sector capital stock are constructed. These measures are used in testing the effects on private sector productivity. Empirical analysis makes use of cross‐country panel data and utilizes various panel econometric methods. Findings – The main finding is that public sector capital has a positive impact on private sector productivity. Some evidence is provided to the hypotheses that also human capital that is generated within the public sector increases private sector productivity. Research limitations/implications – There are a lot of measurement problems with the cross‐country data. Also the non‐stationarity of data creates some estimation problems. These may have some impact on the quantitative, but perhaps not on qualitative, nature of results. Originality/value – Relatively few analysis have made in this area; this is true in particular with comparative (cross‐country) analysis.