Government Investment and Fiscal Stimulus

By Eric M. Leeper, Todd B. Walker, Shu-Chun S. Yang. Social Science Research Network, 2010

406 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/ded140183153ce7ad615fb7f8806d34295180d9d

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Citations in the corpus

Macroeconomic Policy in the Time of COVID-19 (2020, background): “While Ilzetzki, Mendoza, and Végh (2013) find that public investment multipliers can be larger in developing countries, public investment is notorious for long planning, as well as approval and regulatory delays (Leeper, Walker, and Yang 2010).”
Keynesian Government Spending Multipliers and Spillovers in the Euro Area (2011, neutral): “As emphasized by Ramey (2009) the US studies remain divided on central questions such as whether the GDP effect is greater than unity and whether private spending rises or falls in response to additional government purchases.”
Monetary Science, Fiscal Alchemy ∗ (2010, positive): “Leeper et al. (2010) fit post-war U.S. time series to a conventional neo-classical growth model, extended to include substantial fiscal detail: government purchases and transfers and proportional taxes levied against capital and labor income and against consumption expenditures.”
The Macroeconomic Consequences of Infrastructure Investment (2020, background): “Recall that Leeper et al. (2010) had found that introducing timeto-build delays in public capital lowered the short-run multiplier on government investment spending in a neoclassical model.”
FiMod - a DSGE Model for Fiscal Policy Simulations (2012, background): “We set the elasticity of production with respect to public capital to η = 0.015, which is within the range of estimates in the literature (see Aschauer, 1989, Nadiri and Mamuneas, 1994, Holtz-Eakin, 1994, Kamps, 2004, and the discussion in Leeper et al., 2010).”
Government Spending Multipliers in Developing Countries : Evidence from Lending by Official Creditors (2012, positive): “For example, Leeper, Walker, and Yang ( 2010 ) study a calibrated neoclassical model in which productive public capital takes time to build.”