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Investment Stimulation, with Some Reference to Housing

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Author Info
Jacques H. DREZE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))
Alain DURRE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
Henri R. SNEESSENS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

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Abstract

This paper is a follow-up on Section 5 of Drze, Malinvaud et al.Õs 1994 position paper on ÒGrowth and Employment : The Scope for a European InitiativeÓ, 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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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2000013.

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Date of creation: 01 Mar 2000
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Handle: RePEc:ctl:louvre:2000013

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  1. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295. [Downloadable!] (restricted)
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  2. Bean, Charles R, 1984. "Optimal Wage Bargains," Economica, London School of Economics and Political Science, vol. 51(202), pages 141-49, May. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
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  4. DREZE, Jacques H., 1997. "Walras-Keynes equilibria coordination and macroeconomics," CORE Discussion Papers 1997051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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