The Welfare Multiplier of Public Infrastructure Investment

February 29, 2016

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Format: Chicago

Giovanni Ganelli, and Juha Tervala. The Welfare Multiplier of Public Infrastructure Investment, (USA: International Monetary Fund, 2016) accessed November 23, 2024

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.

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

Keywords: Consumption, Global, Infrastructure, Infrastructure investment, Investment shock, Net present value, Output elasticity, Output multiplier, Public Infrastructure, Public Investment, Public investment and public-private partnerships (PPP), Public investment spending, Public spending, Welfare, Welfare multiplier, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/040
Stock No:

WPIEA2016040
ISBN:

9781475516678
ISSN:

1018-5941

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