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Flowers vs garbage trucks: which type of local government investment has the greatest impact on economic growth

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  • Łukasz Olejnik

Abstract

Recently, there has been a rise in research focused on determining the magnitude of the fiscal multiplier. One aspect of this research involves estimating the fiscal multiplier of specific components of government revenues and expenditures and different sub-sectors within the general government sector. The article showcases the results of an analysis that calculates the fiscal multipliers of local government total investments and investments broken down into 10 different categories of investment expenditures, for 73 NUTS-3 sub-regions in Poland over the period from 2007 to 2021. The findings suggest that in the 1-2 years following the initial shock, the accumulated fiscal multipliers of investment expenditures are either insignificant or are significant but less than 1. Contrarily, during the 3-5 year period, the accumulated fiscal multipliers of total investment expenditures and expenditures on road construction show a significant increase, surpassing 1.5. Meanwhile, the fiscal multiplier of investments funded by EU structural funds can reach as high as 3.0.

Suggested Citation

  • Łukasz Olejnik, 2023. "Flowers vs garbage trucks: which type of local government investment has the greatest impact on economic growth," KAE Working Papers 2023-084, Warsaw School of Economics, Collegium of Economic Analysis.
    • Handle: RePEc:sgh:kaewps:2023084
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    File URL: http://hdl.handle.net/20.500.12182/1143
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    References listed on IDEAS

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    1. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
    2. Kameda, Taisuke & Namba, Ryoichi & Tsuruga, Takayuki, 2021. "Decomposing local fiscal multipliers: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 57(C).
    3. Gupta, Sanjeev & Kangur, Alvar & Papageorgiou, Chris & Wane, Abdoul, 2014. "Efficiency-Adjusted Public Capital and Growth," World Development, Elsevier, vol. 57(C), pages 164-178.
    4. Saccone, Donatella & Posta, Pompeo Della & Marelli, Enrico & Signorelli, Marcello, 2022. "Public investment multipliers by functions of government: An empirical analysis for European countries," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 531-545.
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    More about this item

    Keywords

    fiscal multiplier; local government investment; fiscal multiplier of disaggregated investment expenditure; local projections;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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