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A NOTE ON PUBLIC INVESTMENT, PUBLIC DEBT, AND MACROECONOMIC PERFORMANCE

Published online by Cambridge University Press:  21 May 2010

Mustafa Ismihan  and
F. Gulcin Ozkan
Mustafa Ismihan
Affiliation:
Atilim University
F. Gulcin Ozkan*
Affiliation:
University of York
*
Address correspondence to: F. Gulcin Ozkan, Department of Economics and Related Studies (DERS), University of York, Heslington, York, YO10 5DD, UK; e-mail: fgo2@york.ac.uk.
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Abstract

This paper provides an assessment of public capital spending within a macroeconomic policy model with explicit monetary and fiscal interactions, in contrast to most of the existing analyses of public investment that utilize “real” general equilibrium models. As such, we are able to consider the interactions of public investment with inflation, taxation, and public debt. Our results indicate that a clear trade-off exists between the costs and benefits of public investment, as is the case in the existing literature. However, the use of a monetary-fiscal policy model rather than a “real” general equilibrium one enables us to trace the macroeconomic channels including monetary ones through which these costs and benefits are transmitted to the rest of the economy. To the extent that these costs and benefits vary between countries, our results provide a potential explanation for the mixed empirical findings on the real effects of public capital spending.

Keywords

Public InvestmentPublic DebtMacroeconomic Performance
Type
Notes
Information
Macroeconomic Dynamics , Volume 15 , Issue 2 , April 2011 , pp. 265 - 278
Copyright
Copyright © Cambridge University Press 2010

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