Government investment and fiscal stimulus

Eric Leeper, Todd Walker and Shu-Chun Yang

Journal of Monetary Economics, 2010, vol. 57, issue 8, 1000-1012

Abstract: Effects of government investment are studied in an estimated neoclassical growth model. The analysis focuses on two dimensions that are critical for understanding government investment as a fiscal stimulus: implementation delays for building public capital and expected fiscal adjustments to deficit-financed spending. Implementation delays can produce small or even negative labor and output responses to increases in government investment in the short run. Anticipated fiscal adjustments matter both quantitatively and qualitatively for long-run growth effects. When public capital is insufficiently productive, distorting financing can make government investment contractionary at longer horizons.

Date: 2010
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Working Paper: Government Investment and Fiscal Stimulus (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:57:y:2010:i:8:p:1000-1012

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