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Public investment multipliers: Evidence from stock returns of the road pavement industry in Japan

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  • Kanazawa, Nobuyuki

Abstract

This study contributes empirical evidence of the macroeconomic impacts of public investment. I extract public investment news shocks from the excess returns of narrowly defined road pavement firms and use them as an instrument for future public investment spending. Using Japanese data for the period between 1980 and 2014, I find that when the news shock is followed by a persistent increase in public investment and a weak real interest rate response, the public investment spending has a significant stimulative effect over the medium term. The estimated cumulative multiplier is as large as 6.10, four years after the shock. However, the cumulative multiplier eventually falls below 1 after 10 years. I also report a substantial temporary improvement in aggregate labor productivity associated with a rise in public investment spending.

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  • Kanazawa, Nobuyuki, 2021. "Public investment multipliers: Evidence from stock returns of the road pavement industry in Japan," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:dyncon:v:133:y:2021:i:c:s0165188921001822
    DOI: 10.1016/j.jedc.2021.104247
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    Cited by:

    1. Imai, Masami, 2022. "Local economic impacts of legislative malapportionment," Journal of Urban Economics, Elsevier, vol. 131(C).
    2. Tomomi Miyazaki & Haruo Kondoh, 2022. "Effects of Monetary and Fiscal Policy Interactions on Regional Employment: Evidence from Japan," Discussion Papers 2206, Graduate School of Economics, Kobe University.
    3. Miyazaki, Tomomi & Hiraga, Kazuki & Kozuka, Masafumi, 2024. "Stock market response to public investment under the zero lower bound: Cross-industry evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Fiscal multiplier; Stock returns; Public Investment; Infrastructure Investment; News shock;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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