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Government Investment and Fiscal Stimulus in the Short and Long Runs

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

This paper contributes to the debate about fiscal multipliers by studying the impacts of government investment in conventional neoclassical growth models. The analysis focuses on two dimensions of fiscal policy that are critical for understanding the effects of government investment: implementation delays associated with building public capital projects and expected future fiscal adjustments to debt-financed spending. Implementation delays can produce small or even negative labor and output responses in the short run; anticipated fiscal financing adjustments matter both quantitatively and qualitatively for long-run growth effects. Taken together, these two dimensions have important implications for the short-run and long-run impacts of fiscal stimulus in the form of higher government infrastructure investment. The analysis is conducted in several models with features relevant for studying government spending, including utility-yielding government consumption, time-to-build for private investment, and government production.

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File URL: http://www.nber.org/papers/w15153.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15153.

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Date of creation: Jul 2009
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Publication status: published as “Government Investment and Fiscal Stimulus,” Journal of Monetary Economics 57(8): 1000- 1012, 2010 (with Todd B. Walker and Shu-Chun Susan Yang)
Handle: RePEc:nbr:nberwo:15153
Note: EFG
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