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Investment stimulation, with some reference to housing

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  • DREZE, Jacques H.
  • DURRE, Alain
  • SNEESSENS, Henri R.

Abstract

This paper is a follow-up on Section 5 of Drèze, Malinvaud et al.’s 1994 position paper on “Growth and Employment : The Scope for a European Initiative”, in favour of policies aiming to sustain demand through investments, without aggravating public deficits. We build on several recent papers to investigate further the argument. We first briefly review a non-standard theoretical model based upon contemporaneous thinking about incompleteness of markets, and its econometric validation. This analysis suggests that policies aimed at stimulating aggregate activity and supporting more optimistic expectations may be needed to achieve faster growth in economies suffering from persistent underutilistion of resources. We next elaborate on the principle of employment subsidies, with reference to housing. At times of severe unemployment, a correct evaluation of investment projects must take into account the wedge between the private and the social cost of labour. This labour cost distortion generates a discouting distortion. We briefly discuss both and derive implications for investment stimulation policies. We also review the main problems of implementation of a European investment program and report on a preliminary attempt at checking the applicability to housing in Wallony.
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Suggested Citation

  • DREZE, Jacques H. & DURRE, Alain & SNEESSENS, Henri R., 2000. "Investment stimulation, with some reference to housing," LIDAM Reprints CORE 1483, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1483
    Note: In : Recherches Economiques de Louvain, 66(1), 33-53, 2000
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    1. Dreze, Jacques H. & Gollier, Christian, 1993. "Risk sharing on the labour market and second-best wage rigidities," European Economic Review, Elsevier, vol. 37(8), pages 1457-1482, December.
    2. Bean, Charles R, 1984. "Optimal Wage Bargains," Economica, London School of Economics and Political Science, vol. 51(202), pages 141-149, May.
    3. Dreze, Jacques H., 1997. "Walras--Keynes equilibria coordination and macroeconomics," European Economic Review, Elsevier, vol. 41(9), pages 1735-1762, December.
    4. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    5. Shadman-Mehta, Fatemeh & Sneessens, Henri R., 1998. "Demand-Supply Interactions and Unemployment Dynamics: Can there be Path Dependency ? The Case of Belgium, 1955-1994," LIDAM Discussion Papers IRES 1998017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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    Cited by:

    1. Jacques Drèze, 2001. "On the Macroeconomics of Uncertainty and Incomplete Markets," International Economic Association Series, in: Jacques Drèze (ed.), Advances in Macroeconomic Theory, chapter 3, pages 30-55, Palgrave Macmillan.

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