Time-to-build, consumption complementarity, and fiscal stimulus

Jingchao Li and Rong Li ()

Economics Letters, 2018, vol. 163, issue C, 121-125

Abstract: We show that time-to-build, which creates a time gap between government spending and the accumulation of public goods, is an important element that weakens the effectiveness of fiscal stimulus. In the environment where private consumption and public goods are Edgeworth complements, adding time-to-build to the model delays the timing of utility-enhancing effects of an increase in government expenditure, leading households to shift consumption from today to the future. The expansionary effect of government spending is hence dampened, which contrasts existing studies with Edgeworth complementarity between private and public consumption.

Keywords: Time-to-build; Consumption complementarity; Government spending (search for similar items in EconPapers)
JEL-codes: E62 H50 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:163:y:2018:i:c:p:121-125

DOI: 10.1016/j.econlet.2017.12.022

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