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The Welfare Multiplier of Public Infrastructure Investment
Author:
Mr. Giovanni Ganelli
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and
Juha Tervalanull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 040
Language:
English
Publication Date:
29 Feb 2016
DOI:
https://doi.org/10.5089/9781475516678.001
ISBN:
9781475516678
ISSN:
1018-5941
Pages:
27
Keywords:
WP; public spending; net present value; Public Infrastructure; Public Investment; Welfare; welfare multiplier; output multiplier; infrastructure investment; output elasticity; investment shock; Public investment and public-private partnerships (PPP); Public investment spending; Consumption; Infrastructure; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2016: Issue 040