EconPapers    
Economics at your fingertips  
 

Stabilization policy, infrastructure investment, and welfare in a small open economy

Yin Germaschewski ()

Economic Modelling, 2020, vol. 84, issue C, 322-339

Abstract: Using a two-sector neoclassical growth model in an open economy setting with heterogeneous agents, this paper studies the distributional effects and welfare implications of a joint monetary and fiscal policy response to public infrastructure expansion in emerging market economies. The results show that fiscal stabilization policy is critical for achieving fiscal sustainability and price stability. With joint support of monetary and fiscal policy, government infrastructure investment provides significant welfare gains to the economy, and the choice of fiscal instruments has major distributional effects across agents: saving households accrue the highest welfare gains with new bond issuance, while hand-to-mouth consumers are better off when non-distorting taxes are adjusted. These potential tradeoffs in welfare due to households’ differing responses to infrastructure expansion have important implications for policy making.

Keywords: Infrastructure investment; Fiscal stabilization; Economic growth of emerging market economies; Welfare (search for similar items in EconPapers)
JEL-codes: O11 O23 E63 F43 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999318313841
Full text for ScienceDirect subscribers only

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:eee:ecmode:v:84:y:2020:i:c:p:322-339

DOI: 10.1016/j.econmod.2019.04.023

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2021-01-15
Handle: RePEc:eee:ecmode:v:84:y:2020:i:c:p:322-339