The Welfare Multiplier of Public Infrastructure Investment

Author/Editor: Giovanni Ganelli ; Juha Tervala
Publication Date: February 29, 2016
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 16/40
Subject(s): Infrastructure | Public investment | Welfare | General equilibrium models

Publication Date: February 29, 2016
ISBN/ISSN: 9781475516678/1018-5941 Format: Paper
Stock No: WPIEA2016040 Pages: 27
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