Government policies and incentives have limited impact on aggregate investment.
The article discusses how economists have traditionally divided aggregate investment into expansionary and replacement components. Replacement investment was seen as passive, while expansionary investment was linked to desired capital stock. This approach limited the direct impacts of policies and incentives to net investment only. Over the past 25 years, this partitioning has made it easier for statisticians and economists to analyze economic data. The researchers highlight the persistence of this approach in economic models and practical formulas.