The welfare effects of infrastructure investment in a heterogeneous agents economy

2019 ◽  
Vol 20 (1) ◽  
Author(s):  
John Gibson ◽  
Felix Rioja
Keyword(s):  
Welfare Effects ◽  
Income Taxes ◽  
Infrastructure Investment ◽  
Labor Income ◽  
Public Infrastructure ◽  
Distribution Of Wealth ◽  
Long Run ◽  
Short Run ◽  
Strong Consensus ◽  
Distortionary Taxes

Abstract Public infrastructure is one of the foundations for the economic growth of a country. While there is a strong consensus regarding infrastructure’s effect on growth, less is known about the effect of infrastructure on welfare and the distribution of wealth. In this paper, we examine the quantitative effect of infrastructure investment on welfare and the degree of inequality present within a developing country. In so doing, we characterize the effects resulting from increased infrastructure investment by tracing out the entire transition path between steady states. Three results standout: (i) both average and individual welfare effects are sizable, regardless of how the additional investment is financed, (ii) when distortionary taxes are adjusted to finance additional investment, poorer agents benefit more when the interest income tax is used, while richer agents benefit more when either the consumption or labor income taxes are used, (iii) inequality, as measured by the wealth Gini, rises in the short-run, but the long-run effect depends on which financing method is chosen.

Does public investment crowd-out private investment in India

2017 ◽  
Vol 9 (1) ◽  
pp. 50-69 ◽  
Author(s):  
Shanmugam Muthu
Keyword(s):  
Public Investment ◽  
Private Investment ◽  
Infrastructure Investment ◽  
Public Infrastructure ◽  
Public And Private ◽  
Content Type ◽  
Macroeconomic Uncertainty ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to examine the crowding-in or crowding-out relationship between public and private investment in India. Design/methodology/approach The autoregressive distributed lag (ARDL) bounds testing approach is used to estimate the long run relationship between public and private investment using annual data from 1971-1972 to 2009-2010. Findings Based on the empirical findings, it is observed that aggregate public investment has a positive effect on private investment both in the long run and the short run. In contrast to the findings of previous studies, no significant impact of public infrastructure investment on private investments is found in the long run, while non-infrastructure investment has a positive impact on private investment in the short run. Among the various categories of infrastructure sector, a positive and significant impact in the case of electricity, gas and water supply is observed. Similarly, the result indicates that public investment in machinery and equipment and construction have substantially influenced the private sector machinery and equipment in the long run and the short run. In the case of the role of macroeconomic uncertainty, the results find a negative and significant impact on private investment and the impact is higher in the short run than in the long run. Originality/value The present study extends the literature in three important ways: First, the study attempts to capture heterogeneity of public investment as well as disaggregate effects of two different categories of public infrastructure on private investment. The extent to which two different types of public assets impact the private investment in machinery and equipment investment is also examined. Second, ARDL model is used to examine the long-run relationship between public and private investment. Third, the study incorporates macroeconomic uncertainty into the empirical analysis to examine the role of macroeconomic volatility in determining private investment decision.

scholarly journals Impact of Public Infrastructure Investment on Private Infrastructure Investment

2021 ◽  
Vol 7 (3) ◽  
pp. 407-416
Author(s):  
Faisal Nadeem Shah ◽  
Zainab Fatima ◽  
Bilal Bashir
Keyword(s):  
Capital Formation ◽  
Policy Implications ◽  
Infrastructure Investment ◽  
Public Infrastructure ◽  
Long Run ◽  
Short Run ◽  
Auto Regressive ◽  
The Government ◽  
Role Of The Government ◽  
Bound Test

The aim of this paper is to find the relationship among government and private capital formation in Pakistan during the period 1981 to 2018. This study employs Auto Regressive Distributive Lag (ARDL) bound test. The results show that government infrastructure investment negatively effects on private infrastructure capital formation in long run and short run, indicating that government infrastructure investment crowds out private infrastructure investment. In determining the role of the government in investment and liberalization policies, the results of this paper have important policy implications.

Consumption, aggregate wealth and expected stock returns: a quantile cointegration approach

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Ricardo Quineche
Keyword(s):  
Stock Returns ◽  
The United States ◽  
Labor Income ◽  
Left Tail ◽  
Long Run ◽  
Short Run ◽  
Excess Stock Returns ◽  
Aggregate Wealth ◽  
Risk Free Rate ◽  
The Right

Abstract This paper empirically examines the long-run relationship between consumption, asset wealth and labor income (i.e., cay) in the United States through the lens of a quantile cointegration approach. The advantage of using this approach is that it allows for a nonlinear relationship between these variables depending on the level of consumption. We estimate the coefficients using a Phillips–Hansen type fully modified quantile estimator to correct for the presence of endogeneity in the cointegrating relationship. To test for the null of cointegration at each quantile, we apply a quantile CUSUM test. Results show that: (i) consumption is more sensitive to changes in labor income than to changes in asset wealth for the entire distribution of consumption, (ii) the elasticity of consumption with respect to labor income (asset wealth) is larger at the right (left) tail of the consumption distribution than at the left (right) tail, (iii) the series are cointegrated around the median, but not in the tails of the distribution of consumption, (iv) using the estimated cay obtained for the right (left) tail of the distribution of consumption improves the long-run (short-run) forecast ability on real excess stock returns over a risk-free rate.

On the welfare effects of mergers: Short run vs. long run

1998 ◽  
Vol 38 (1) ◽  
pp. 1-24 ◽  
Author(s):  
Stephen Polasky ◽  
Charles F. Mason
Keyword(s):  
Welfare Effects ◽  
Long Run ◽  
Short Run

Infrastructure investment and employment: Evidence for Portugal

2021 ◽  
Vol 5 (2) ◽  
pp. 1377
Author(s):  
Alfredo M. Pereira ◽  
Rui M. Pereira ◽  
Pedro G. Rodrigues
Keyword(s):  
Infrastructure Investment ◽  
Supply Side ◽  
Long Term Effects ◽  
Demand And Supply ◽  
Vector Autoregressive ◽  
Employment Effects ◽  
Long Run ◽  
Short Run ◽  
Infrastructure Investments

We estimated how investment in 12 infrastructure types affects employment in Portugal. Using a vector-autoregressive specification at the industry level, we found a double dividend associated with ports and airports: investing in either delivers the greatest bang per euro, both on impact and in the long run. One million euros invested in ports and airports creates 717.1 and 290.5 jobs in the long run, respectively, and 535 and 253.3 jobs in the short run, respectively. Regarding long-term employment effects, these are followed by municipal roads, telecommunications, national roads, health structures, education facilities, refineries, railroads, and highways. Water infrastructures and electricity and gas infrastructures have negligible effects. With the long-term effects decomposed, sizable supply-side employment effects for health and education facilities exist, while demand-side effects dominate for airports, ports, municipal roads, and telecommunications. Employment following the investment in national roads is balanced across demand and supply channels. We found no significant employment-related location effects of infrastructure investments. Also, investing in either health facilities or in education buildings entails non-negligible job losses in the short run. These results suggest that the magnitude and the timing of job creation crucially depend on the type of infrastructure investment. Policymakers in Portugal need to be aware of this in choosing between countercyclical or structural targets.

scholarly journals FISCAL AUSTERITY MEASURES: SPENDING CUTS VS. TAX INCREASES

2018 ◽  
Vol 22 (2) ◽  
pp. 501-540 ◽  
Author(s):  
Gerhard Glomm ◽  
Juergen Jung ◽  
Chung Tran
Keyword(s):  
Open Economy ◽  
Risk Premium ◽  
Small Open Economy ◽  
Welfare Effects ◽  
Trade Offs ◽  
Long Run ◽  
Welfare Losses ◽  
Wide Range ◽  
Short Run ◽  
Fiscal Austerity

We formulate an overlapping-generations model with household heterogeneity and productive and nonproductive government programs to study the macroeconomic and intergenerational welfare effects of risk premium shocks and government debt reductions. We demonstrate that in a small open economy with a high level of debt, a small increase in the risk premium of the interest rate leads to a substantial contraction in output and negative welfare effects. We then quantify the effects of reducing the debt-to-gross-domestic-product ratio using a wide range of fiscal austerity measures. Our results indicate trade-offs between short-run contractions and long-run expansions in aggregate output. In the short run, spending-based austerity reforms are worse than tax-based reforms in terms of lost income. However, in the long run, spending-based reforms produce higher output than tax-based reforms. In addition, welfare effects vary significantly across generations, skill groups, and working sectors. The current old and middle-aged generations experience welfare losses, whereas future generations are beneficiaries of the reforms.

Impact of Public and Private Infrastructure Investment on Economic Growth: Evidence from India

2020 ◽  
Vol 12 (2) ◽  
pp. 119-138
Author(s):  
Nishija Unnikrishnan ◽  
Thomas Paul Kattookaran
Keyword(s):  
Economic Growth ◽  
Public Investment ◽  
Impulse Response Function ◽  
Decomposition Analysis ◽  
Private Investment ◽  
Infrastructure Investment ◽  
Public Infrastructure ◽  
Public And Private ◽  
Long Run ◽  
The Impact

Literature presents contradictory views regarding the impact of public and private investment on the economic growth of a country. India being a developing country, where the major share of investment is by public sector, the question which props up is what among public and private investment is contributing more towards the economic growth of the country. In this framework, the gross domestic product (GDP) can be fairly explained as a function of public infrastructure investment and private infrastructure investment. Johansen’s co-integration was used to test the long-run relationship between the variables over the period from 1961–1962 to 2016–2017. A vector error correction model (VECM) along with an impulse response function and variance decomposition analysis was done to measure the impact of public infrastructure investment and private infrastructure investment on the GDP. Based on the empirical evidence discussed earlier, it was evident that both public and private infrastructure investments have a significant impact on the economic growth of the nation. Findings which came up in this study correlate to majority findings of past literature that, when compared with public investment, it is private investment which is capable of giving a better impetus to economic growth.

Government investment in a small open economy

2009 ◽  
Vol 59 (2) ◽  
pp. 119-145 ◽  
Author(s):  
K. Major ◽  
K. Szilágyi
Keyword(s):  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Infrastructure Investment ◽  
Development Programs ◽  
Public Infrastructure ◽  
Government Investment ◽  
Positive Externalities ◽  
Long Run ◽  
Lively Debate

In this article the effects of government infrastructure investment in a small open economy environment are analysed. Apart from enhancing the country’s output directly, government spending on capital — modelled here as development of public infrastructure — creates positive externalities in the production process of the private sector. Short- and long-run effects of ambitious development programs, depending on the source of financing (transfers or loans from abroad), are addressed. The empirical relevance of the quantitative conclusions to be derived from the present stylised form of the model is admittedly limited. However, the qualitative conclusions can add some new insights and contribute to the lively debate on the expected effects of government investments and EU transfers on macroeconomic development.

Public Infrastructure and State Economic Development

1995 ◽  
Vol 9 (4) ◽  
pp. 331-338 ◽  
Author(s):  
Robert Krol
Keyword(s):  
Economic Performance ◽  
Original Data ◽  
Production Functions ◽  
Infrastructure Investment ◽  
Public Infrastructure ◽  
Estimation Techniques ◽  
Academic Literature ◽  
Long Run ◽  
Data Production ◽  
State Production

The effect of public infrastructure on long-run economic performance has been actively debated in the academic literature and public policy circles. A comparison of the divergent results in this literature is difficult because studies use different data, production functions, and statistical procedures. A major point of contention is that the studies most favorable toward infrastructure investment ignore differences in state production functions. This study attempts to clarify the literature by using Munnell's original data, but also using estimation techniques that control for cross-state differences in production functions. The results confirm that the strong original findings were derived from poor estimation techniques.

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