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The public investment multiplier in a production network

Author

Listed:
  • Alessandro Peri

    (Banco de España)

  • Omar Rachedi

    (Banco de España)

  • Iacopo Varotto

    (Banco de España)

Abstract

Aggregate and sectoral effects of public investment crucially depend on the interaction between the output elasticity to public capital and input-output linkages. We identify this dependence through the lens of a New Keynesian production network. This setting doubles the socially optimal amount of public capital relative to the average one-sector economy, leading to a substantial amplification of the public investment multiplier. We also document novel sectoral implications of public investment. Although public investment is concentrated in far fewer sectors than public consumption, its effects are relatively more evenly distributed across industries. We validate this model implication in the data.

Suggested Citation

  • Alessandro Peri & Omar Rachedi & Iacopo Varotto, 2023. "The public investment multiplier in a production network," Working Papers 2311, Banco de España.
    • Handle: RePEc:bde:wpaper:2311
    DOI: https://doi.org/10.53479/29825
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    More about this item

    Keywords

    sectoral heterogeneity; input-output matrix; public capital;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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