TY - JOUR
T1 - Public Investment in a Production Network
T2 - Aggregate and Sectoral Implications
AU - Peri, Alessandro
AU - Rachedi Rachedi, Omar
AU - Varotto, Iacopo
PY - 2024
Y1 - 2024
N2 - Aggregate and sectoral effects of public investment crucially depend on the interaction between the output elasticity to public capital and intermediate inputs. We uncover this fact through the lens of a New Keynesian production network. This setting doubles the socially optimal amount of public capital relative to the one-sector model without intermediate inputs, 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.
AB - Aggregate and sectoral effects of public investment crucially depend on the interaction between the output elasticity to public capital and intermediate inputs. We uncover this fact through the lens of a New Keynesian production network. This setting doubles the socially optimal amount of public capital relative to the one-sector model without intermediate inputs, 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.
U2 - 10.1162/rest_a_01391
DO - 10.1162/rest_a_01391
M3 - Article
SN - 0034-6535
JO - Review of Economics and Statistics
JF - Review of Economics and Statistics
ER -