An Estimation and Decomposition of the Government Investment Multiplier
Descripción general
Resumen del artículo
This study finds that government investment in Germany has a significant positive effect on the economy, leading to a crowding-in of private investment and an output multiplier of around 2. Specifically, investments in infrastructure seem most effective. The study constructs a narrative instrument to identify exogenous changes in investment policy, addressing concerns about reverse causality.
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Government spending on things like roads and schools can actually boost the economy by encouraging businesses to invest more and create jobs.
Posibles conflictos de intereses
None identified
Limitaciones identificadas
Explicación de la calificación
This paper presents a strong case for the positive effects of government investment in Germany using novel data and methods. The identification strategy with the narrative instrument is clever. While there are some limitations regarding generalizability, the detailed analysis for Germany makes the study valuable. The DSGE analysis adds depth to the findings.
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