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Government investment and fiscal stimulus

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

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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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 8 (November)
Pages: 1000-1012

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Handle: RePEc:eee:moneco:v:57:y:2010:i:8:p:1000-1012
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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
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  18. Todd B. Walker & Eric M. Leeper & Susan S. Yang, 2012. "Fiscal Foresight and Information Flows," IMF Working Papers 12/153, International Monetary Fund.
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  25. Eric Leeper & Todd B. Walker & Susan Shu-Chun Yang, 2009. "Government Investment And Fiscal Stimulus In The Short And Long Runs," Caepr Working Papers 2009-011, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
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