Quarterly Review 2341

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Maintenance and Repair: Too Big to Ignore

Ellen R. McGrattan - Consultant
James A. Schmitz, Jr. - Senior Research Economist

Fall 1999

Abstract
Most models of aggregate economic activity, like the standard neoclassical growth model, ignore the fact that equipment and structures are maintained and repaired. Once physical capital is purchased in these models, there are typically no more decisions made regarding its use. The theme of this article is that there is evidence to suggest that incorporating expenditures on the maintenance and repair of physical capital into models of aggregate economic activity will change the quantitative answers to some key questions that have been addressed with these models. This evidence is primarily from a little-used economywide survey in Canada. The survey shows that the activity of maintaining and repairing equipment and structures is an activity that is generally both large relative to investment and a substitute for investment to some extent—and to a large extent during some episodes.


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