Government Investment and Fiscal Stimulus in the Short and Long Runs

37 Pages Posted: 21 Jul 2009 Last revised: 29 May 2022

See all articles by Eric M. Leeper

Eric M. Leeper

University of Virginia ; Indiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER); George Mason University - Mercatus Center

Todd B. Walker

Indiana University Bloomington - Department of Economics

Shu-Chun Yang

U.S. Congressional Budget Office (CBO)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2009

Abstract

This paper contributes to the debate about fiscal multipliers by studying the impacts of government investment in conventional neoclassical growth models. The analysis focuses on two dimensions of fiscal policy that are critical for understanding the effects of government investment: implementation delays associated with building public capital projects and expected future fiscal adjustments to debt-financed spending. Implementation delays can produce small or even negative labor and output responses in the short run; anticipated fiscal financing adjustments matter both quantitatively and qualitatively for long-run growth effects. Taken together, these two dimensions have important implications for the short-run and long-run impacts of fiscal stimulus in the form of higher government infrastructure investment. The analysis is conducted in several models with features relevant for studying government spending, including utility-yielding government consumption, time-to-build for private investment, and government production.

Suggested Citation

Leeper, Eric Michael and Walker, Todd B. and Yang, Shu-Chun, Government Investment and Fiscal Stimulus in the Short and Long Runs (July 2009). NBER Working Paper No. w15153, Available at SSRN: https://ssrn.com/abstract=1434668

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Shu-Chun Yang

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