The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies

By Abdul Abiad, Davide Furceri, P. Topalova. Social Science Research Network, 2015

344 citations recorded by the source corpus.

This paper provides new evidence of the macroeconomic effects of public investment in advanced economies. Using public investment forecast errors to identify the causal effect of government investment as well as model simulations, the paper finds that increased public investment raises output, both in the short term and in the long term, crowds in private investment, and reduces unemployment. Several factors shape the macroeconomic effects of public investment. When there is economic slack and monetary accommodation, demand effects are stronger, and the public-debt-to-GDP ratio may actually decline. Public investment is also more effective in boosting output in countries with higher public investment efficiency and when it is financed by issuing debt.

View Paper: https://www.semanticscholar.org/paper/e073feb0b7ab9e1d765ec79019504c7b702f458e

Citations in the corpus

• Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change? (2020, unknown): “Three models for the UK, applying estimates only to fiscal injections based on additional borrowing, find that the long-run multiplier lies in a narrow range of 2.5 to 3.0 (IMF, 2014, Abiad et al., 2015, Mourougane et al., 2016).”