Welfare Multiplier of Public Investment

Giovanni Ganelli and Juha Tervala

IMF Economic Review, 2020, vol. 68, issue 2, No 3, 390-420

Abstract: Abstract We analyze the welfare multipliers of public spending—the consumption equivalent change in welfare for a one dollar change in public spending—in a DSGE model. The welfare multiplier of public investment depends crucially not only on the productivity (output elasticity) of public capital, as shown by earlier studies, but also on the depreciation rate of public capital and the efficiency of public investment defined as a fraction of public investment spending that translates into the public capital stock. When the key parameter values are set based on the empirical estimates for advanced economies and the output multipliers are consistent with the empirical estimates, the welfare multiplier is positive and sizable. The welfare multiplier is roughly zero when the key parameter values are set to match the features of developing economies. A public infrastructure push in advanced economies makes sense, but developing economies should enhance the efficiency and productivity of public investment.

JEL-codes: E62 F41 H42 H54 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1057/s41308-020-00111-7 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Welfare Multiplier of Public Infrastructure Investment (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfecr:v:68:y:2020:i:2:d:10.1057_s41308-020-00111-7

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

DOI: 10.1057/s41308-020-00111-7

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().