The public investment multiplier in a production network

Alessandro Peri, Omar Rachedi and Iacopo Varotto
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Alessandro Peri: Banco de España

No 2311, Working Papers from Banco de España

Abstract: Aggregate and sectoral effects of public investment crucially depend on the interaction between the output elasticity to public capital and input-output linkages. We identify this dependence through the lens of a New Keynesian production network. This setting doubles the socially optimal amount of public capital relative to the average one-sector economy, leading to a substantial amplification of the public investment multiplier. We also document novel sectoral implications of public investment. Although public investment is concentrated in far fewer sectors than public consumption, its effects are relatively more evenly distributed across industries. We validate this model implication in the data.

Keywords: sectoral heterogeneity; input-output matrix; public capital (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2023-03
New Economics Papers: this item is included in nep-dge and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2311

DOI: 10.53479/29825

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