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Government Investment and Fiscal Stimulus

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  • Shu-Chun S. Yang
  • Todd B. Walker
  • Eric M. Leeper

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/229.

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Length: 30
Date of creation: 01 Oct 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/229

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Keywords: Capital; Economic models; Infrastructure; Public investment; government spending; fiscal adjustments; fiscal policy; fiscal stimulus; tax rates; fiscal instruments; consumption tax; tax revenue; government spending multipliers; tax cuts; fiscal adjustment; fiscal years; consumption expenditure; personal consumption; private consumption; government purchases; consumption tax rate; investment spending; general equilibrium; investment multiplier; fiscal data; tax revenues; fiscal variables; real interest rate; budget constraint; business cycles; consumption tax revenue; government budget; public spending; fiscal deficits; consumption taxes; fiscal multipliers; government spending shocks; government consumption expenditure; consumption of fixed capital; fiscal measures; national income; fiscal sustainability; government expenditures; aggregate consumption; price deflator; consumption expenditures; fiscal expansions; nondurable goods; fiscal actions; capital income; fiscal situation; fiscal rules; federal government budget; labor income;

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