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Probably Too Little, Certainly Too Late. An Assessment of the Juncker Investment Plan

Mathilde Le Moigne, Francesco Saraceno () and Sébastien Villemot ()
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Mathilde Le Moigne: École normale supérieure - Paris

No 2016-10, Sciences Po publications from Sciences Po

Abstract: This paper aims at quantifying the impact of a stimulus plan based on a public investment push, within a dynamic stochastic general equilibrium model of the Eurozone economy. We estimate an extension of Leeper et al.’s (2010) model with public capital and time-to-build, to quantify the impact of the European Commission’s Investment Plan for Europe (the “Juncker plan”). The public investment push is assessed in normal times and starting from the zero lower bound, making different hypotheses on private investment leverage and on capital productivity. Then, in order to assess the effectiveness of the Juncker plan, we compare it with the stimulus plan implemented by the Obama administration in 2009. The main conclusion of the paper is that, had it been implemented at the beginning of the crisis, the Juncker plan would have had a significant positive impact. But as it is being launched very late in the crisis, to be effective the plan should be significantly larger in size.

Keywords: public investment; leverage; Juncker plan; zero lower bound (search for similar items in EconPapers)
JEL-codes: E22 E32 E65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2016-03
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