The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies
IMF Working Papers, May 4, 2015
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Bibliographic details
- Authors: Abdul d Abiad, Davide Furceri, Petia Topalova
- Published: May 4, 2015
- Series: IMF Working Papers
Summary and research design
- Uses public investment forecast errors to identify the causal effect of government investment.
- Sample: 17 OECD economies since 1985.
- Combines empirical identification with model simulations.
- Time frame and publication: May 4, 2015.
Key findings
- Increased public investment raises output both in the short term and in the long term.
- Increased public investment crowds in private investment.
- Increased public investment reduces unemployment.
- When there is economic slack and monetary accommodation, demand effects are stronger.
- Under those conditions, the public-debt-to-GDP ratio may actually decline.
- Public investment is more effective in boosting output in countries with higher public investment efficiency.
- Public investment is more effective when it is financed by issuing debt.
Policy-relevant implications
- Countercyclical public investment can have strong demand and employment effects, particularly during periods of slack combined with accommodative monetary policy.
- Financing public investment by issuing debt can enhance its output effects, conditional on investment efficiency.
- Improving public investment efficiency increases the return of public investment on output.