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The macroeconomic effects of funding U.S. infrastructure

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  • Malley, James
  • Philippopoulos, Apostolis

Abstract

This paper quantitatively assesses the macroeconomic effects of the recently agreed U.S. bipartisan infrastructure spending bill in a general equilibrium model with a mix of neoclassical and new-Keynesian features. We add to the relevant literature by allowing for a more detailed tax structure, different types of infrastructure spending and linkages between the final and intermediate goods sectors. We find long-run output multipliers above unity if the rising public debt, triggered by the increase in infrastructure spending, is stabilised by rises in consumption, dividend and labour income taxes and less than unity for corporate taxes. We also find that self-financing rates associated with infrastructure spending are not generally above 50% despite underprovided private and particularly public capital. Finally, a sensitivity analysis reveals that intersectoral linkages and zero-interest rate policy are critical determinants of multiplier size.

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  • Malley, James & Philippopoulos, Apostolis, 2023. "The macroeconomic effects of funding U.S. infrastructure," European Economic Review, Elsevier, vol. 152(C).
  • Handle: RePEc:eee:eecrev:v:152:y:2023:i:c:s0014292122002148
    DOI: 10.1016/j.euroecorev.2022.104334
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    More about this item

    Keywords

    Infrastructure investment; Public capital; Fiscal multipliers; Taxation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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