An Estimation and Decomposition of the Government Investment Multiplier

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Conflicts of Interest

Identified Weaknesses

Rating Explanation

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Paper Summary

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Government Investment: A Stimulus That Works? (At Least in Germany)

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.

Possible Conflicts of Interest

None identified

Identified Weaknesses

Limited Sample Period

The sample period ends in 2018, so recent events like the COVID-19 pandemic and its effects are not considered in this study.

Limited Geographic Scope

Focusing only on Germany makes it difficult to generalize about government investment effects in other countries, which may have different economic situations.

Comparing Estimates Using Different Methodologies

The study compares multipliers from several previous studies, but they use different methodologies and samples, making comparisons not entirely valid.

Rating Explanation

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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