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The Welfare Multiplier of Public Infrastructure Investment

Listed author(s):
  • Giovanni Ganelli
  • Juha Tervala

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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 16/40.

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Length: 27
Date of creation: 29 Feb 2016
Handle: RePEc:imf:imfwpa:16/40
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