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Government Investment and Fiscal Stimulus

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  • Susan 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.

Suggested Citation

  • Susan S. Yang & Todd B. Walker & Eric M. Leeper, 2010. "Government Investment and Fiscal Stimulus," IMF Working Papers 10/229, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/229
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Capital; Economic models; Public investment; Infrastructure; Fiscal stimulus; Fiscal policy; government investment; implementation delays; DGSE Bayesian Estimation; government spending; fiscal adjustments; tax rates;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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