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Time-to-build, consumption complementarity, and fiscal stimulus

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  • Li, Jingchao
  • Li, Rong

Abstract

We show that time-to-build, which creates a time gap between government spending and the accumulation of public goods, is an important element that weakens the effectiveness of fiscal stimulus. In the environment where private consumption and public goods are Edgeworth complements, adding time-to-build to the model delays the timing of utility-enhancing effects of an increase in government expenditure, leading households to shift consumption from today to the future. The expansionary effect of government spending is hence dampened, which contrasts existing studies with Edgeworth complementarity between private and public consumption.

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  • Li, Jingchao & Li, Rong, 2018. "Time-to-build, consumption complementarity, and fiscal stimulus," Economics Letters, Elsevier, vol. 163(C), pages 121-125.
    • Handle: RePEc:eee:ecolet:v:163:y:2018:i:c:p:121-125
    DOI: 10.1016/j.econlet.2017.12.022
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    References listed on IDEAS

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    5. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
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    Cited by:

    1. Zhiming Ao & Ziyue Chen & He Nie, 2022. "Time to build, financial frictions, and the effectiveness of fiscal stimulus," Financial Economics Letters, Anser Press, vol. 1(1), pages 21-28, December.

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    More about this item

    Keywords

    Time-to-build; Consumption complementarity; Government spending;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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