Governmentinvestmentandfiscalstimulus

Effectsofgovernmentinvestmentarestudiedinanestimatedneoclassicalgrowth model.Theanalysisfocusesontwodimensionsthatarecriticalforunderstanding governmentinvestmentasafiscalstimulus:implementationdelaysforbuildingpublic capitalandexpectedfiscaladjustmentstodeficit-financedspending.Implementation delayscanproducesmallorevennegativelaborandoutputresponsestoincreasesin governmentinvestmentintheshortrun.Anticipatedfiscaladjustmentsmatterboth quantitativelyandqualitativelyforlong-rungrowtheffects.Whenpubliccapitalis insufficientlyproductive,distortingfinancingcanmakegovernmentinvestment contractionaryatlongerhorizons.