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Business and Government Expenditures for Software as Investment

The rapid expansion and application of technological knowledge in its many forms (research and development, capital-embodied technical change, human competency, and the associated firm-specific co-investments) are key features of recent U.S. economic growth. Accounting practice traditionally excludes the intangibles component of this knowledge capital and, according to our estimates, excludes approximately $1 trillion from conventionally measured non-farm business sector output by the late 1990s and understates the business capital stock by $3.6 trillion. The current practice also overstates labor’s share of income by a significant amount and masks a downward trend in that share. Our results also suggest that the inclusion of intangibles both as an input and as an output can have a large impact on our understanding of economic growth. We have found that the inclusion of intangible investment in the real output of the non-farm business sector increases the estimated growth rate of output per hour by 10–20 percent relative to the baseline case which completely ignores intangibles. T