The Effect of Public Investment on the Cycle and Economic Growth: A Simple Theoretical Model

Daniel Vel zquez-Orihuela, Juan-Roberto Vargas-S Nchez and Zeus Salvador Hern ndez-Veleros
Additional contact information
Daniel Vel zquez-Orihuela: Autonomous University of Hidalgo State, Mexico.
Juan-Roberto Vargas-S Nchez: Autonomous University of Hidalgo State, Mexico.
Zeus Salvador Hern ndez-Veleros: Autonomous University of Hidalgo State, Mexico.

International Journal of Economics and Financial Issues, 2019, vol. 9, issue 1, 37-50

Abstract: In the specialized literature, there are two versions of the effect of public investment on growth. One of them states that the relationship between them is positive; the other states that there is optimal public investment. This paper proposes an analytical theoretical scheme supporting that, in the short term, the relationship between public investment and economic growth is positive. However, in the long term, this relationship can still be positive or become negative depending on whether there is a crowding-out or a crowding-in effect. Whenever a crowding-in effect occurs, and the government does not have to decrease its investment, it does not increase debt or taxes, and the economy will be on a growth path. However, if there is a crowding-out effect, the trajectory of the economy will depend on the productive efficiency of the displaced capital.

Keywords: public investment; economic cycle; economic growth; crowding-in; crowding-out. (search for similar items in EconPapers)
JEL-codes: E10 E32 E60 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econjournals.com/index.php/ijefi/article/download/7237/pdf (application/pdf)
https://www.econjournals.com/index.php/ijefi/article/view/7237/pdf (text/html)

Related works:
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:eco:journ1:2019-01-6

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().