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The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies

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  • Mr. Abdul d Abiad
  • Petia Topalova
  • Davide Furceri

Abstract

This paper provides new evidence of the macroeconomic effects of public investment in advanced economies. Using public investment forecast errors to identify the causal effect of government investment in a sample of 17 OECD economies since 1985 and model simulations, the paper finds that increased public investment raises output, both in the short term and in the long term, crowds in private investment, and reduces unemployment. Several factors shape the macroeconomic effects of public investment. When there is economic slack and monetary accommodation, demand effects are stronger, and the public-debt-to-GDP ratio may actually decline. Public investment is also more effective in boosting output in countries with higher public investment efficiency and when it is financed by issuing debt.

Suggested Citation

  • Mr. Abdul d Abiad & Petia Topalova & Davide Furceri, 2015. "The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies," IMF Working Papers 2015/095, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2015/095
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    More about this item

    Keywords

    WP; investment shock; public investment; investment; Fiscal policy; Growth; Debt; investment efficiency; efficiency frontier; crowding in; investment behavior well; Public investment spending; Private investment; Global;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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