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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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  1. Takashi Kano & James M. Nason, 2014. "Business Cycle Implications of Internal Consumption Habit for New Keynesian Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(2-3), pages 519-544, 03.
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  3. Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 709-746, May.
  4. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
  5. Ni, Shawn, 1995. "An empirical analysis on the substitutability between private consumption and government purchases," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 593-605, December.
  6. Ambler, Steve & Paquet, Alain, 1996. "Fiscal spending shocks, endogenous government spending, and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 237-256.
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