Government Investment and Fiscal Stimulus

Author/Editor:

Susan S. Yang ; Todd B. Walker ; Eric M. Leeper

Publication Date:

October 1, 2010

Electronic Access:

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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:

Effects of government investment are studied in an estimated neoclassical growth model. The analysis focuses on two dimensions that are critical for understanding government investment as a fiscal stimulus: implementation delays for building public capital and expected fiscal adjustments to deficit-financed spending. Implementation delays can produce small or even negative labor and output responses to increases in government investment in the short run. Anticipated fiscal adjustments matter both quantitatively and qualitatively for long-run growth effects. When public capital is insufficiently productive, distorting financing can make government investment contractionary at longer horizons.

Series:

Working Paper No. 10/229

Subject:

English

Publication Date:

October 1, 2010

ISBN/ISSN:

9781455208944/1018-5941

Stock No:

WPIEA2010229

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

30

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