The Welfare Multiplier of Public Infrastructure Investment

Author/Editor:

Giovanni Ganelli ; Juha Tervala

Publication Date:

February 29, 2016

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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. 2016/040

Subject:

Consumption Expenditure Infrastructure National accounts Public investment and public-private partnerships (PPP) Public investment spending

English

Publication Date:

February 29, 2016

ISBN/ISSN:

9781475516678/1018-5941

Stock No:

WPIEA2016040

Pages:

27

Please address any questions about this title to publications@imf.org