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The Welfare Multiplier of Public Infrastructure Investment

Author

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  • Giovanni Ganelli
  • Juha Tervala

Abstract

We analyze the welfare multipliers of public spending (the consumption equivalent change in welfare for one dollar change in public spending) in a DSGE model. The welfare multipliers of public infrastructure investment are positive if infrastructure is sufficiently effective. When the medium-term output multipliers are consistent with the empirical estimates (1-1.4), the welfare multiplier is 0.8. That is, a dollar spent by the government for investment raises domestic welfare by equivalent of 0.8 dollars of private consumption. This suggests that the welfare gains of public infrastructure investment, if chosen wisely, may be substantial.

Suggested Citation

  • Giovanni Ganelli & Juha Tervala, 2016. "The Welfare Multiplier of Public Infrastructure Investment," IMF Working Papers 16/40, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:16/40
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    References listed on IDEAS

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    Cited by:

    1. Jean-Marc Fournier, 2016. "The Positive Effect of Public Investment on Potential Growth," OECD Economics Department Working Papers 1347, OECD Publishing.
    2. Philipp Engler & Juha Tervala, 2016. "Hysteresis and Fiscal Policy," Discussion Papers of DIW Berlin 1631, DIW Berlin, German Institute for Economic Research.
    3. Patrice Ollivaud, 2017. "Improving the allocation and efficiency of public spending in Indonesia," OECD Economics Department Working Papers 1381, OECD Publishing.
    4. Juan Carlos Moreno-Brid & Noel Pérez-Benítez & Héctor J. Villarreal, 2016. "Austerity in Mexico: Economic Impacts and Unpleasant Choices Ahead," World Economic Review, World Economics Association, vol. 2016(7), pages 56-68, July.

    More about this item

    Keywords

    Public investment; Welfare; Public Infrastructure; investment; consumption; multipliers; elasticity; Open Economy Macroeconomics; Publicly Provided Private Goods; Infrastructures; All Countries;

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