Description

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.

More publications in this series: Working Papers

More publications by: Giovanni Ganelli ; Juha Tervala