Macroeconomic, sectoral and distributional effects of the Infrastructure Investment and Jobs Act in the United States

David Suárez-Cuesta, Maria C. Latorre and Robert Lawrence

No 333457, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: We offer the first analysis of the Infrastructure Investment and Jobs Act (IIJA) using a Computable General Equilibrium approach, to the best of our knowledge. We use The Enormous Regional Model (TERM) for the U.S. economy, which allows us to introduce regional-level shocks and offers macroeconomic results, industry-level results and disaggregated results for ten different occupations (skilled and unskilled). We evaluate the short run effects of the increase in government demand for Construction and the long run effects of the stimulus once the investments rise the country’s physical capital stock. The debt increase caused by the upfront investment can be financed through foreign debt (i.e., a trade deficit) or through reduced national savings. We evaluate the impact under both scenarios, considering that this contrast between national borrowing and foreign borrowing can also be interpreted as a differential impact between short and long-term debt maturity periods. The accumulation of an important debt, which has to be paid back in a given point of time in the future, tends to translate into abrupt production adjustments and even output contraction in some sectors. By contrast, a more regular and evenly distributed debt service tends to facilitate a strong boost for production across all sectors and workers categories, with unskilled workers (those without a university degree) benefiting the most. The plan unleashes a general expansion of wages and employment across most occupations, with only a few exceptions remaining nearly unaffected. In general, although most workers categories are better off, unskilled workers benefit more than skilled ones in terms of the number of jobs created and wages. In addition, labor increases its share while capital slightly diminishes it in total GDP.

Keywords: Labor and Human Capital; Public Economics (search for similar items in EconPapers)
Pages: 30
Date: 2022
New Economics Papers: this item is included in nep-des and nep-mac
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