This book analyzes the dynamic macroeconomic effects of public capital in industrialized countries. The issue of whether public capital is productive has received a great deal of recent attention. Yet, existing empirical analyses have been limited to a small set of countries. This book presents a new database that provides internationally comparable capital stock estimates for 22 OECD countries for the 1960-2001 period. Building on this database, the book estimates the dynamic effects of public capital using a variety of econometric methods. The results suggest that public capital is productive in OECD countries on average. The theoretical analysis based on a dynamic general equilibrium model shows that the effects of public capital depend crucially on the way the government chooses to finance additional spending.

To investigate the effects on Papua New Guinea’s economy of substantial liquified natural gas revenues arriving in 2015, we employ a model to examine the macroeconomic effects of a scalingup of natural resource windfall revenues and the implications for a variety of policy responses. The model is a multi-sector dynamic stochastic general equilibrium (DSGE) model, and features components that allow for a detailed study of the effects of both fiscal and monetary policy in response to a positive shock to the mineral resource value of a country. The model contains tradable, non-tradable, and mining sectors, as well as an independent central bank and fiscal authority. We calibrate the model to the current economy of Papua New Guinea and run a suite of policy simulations. We find that macroeconomic effects from a resource boom typically associated with Dutch Disease effects such as a real appreciation and a fall in tradable sector production stem largely from the non-tradable component of government spending. The central bank can offset the real appreciation, but not without crowding out the private sector. A sovereign wealth fund (SWF), combined with a smooth capital spending path, entails the best means of dealing with macroeconomic volatility and maintaining a stable fiscal regime.

This paper provides new evidence of the macroeconomic effects of public investment in advanced economies. Using public investment forecast errors to identify the causal effect of government investment in a sample of 17 OECD economies since 1985 and model simulations, the paper finds that increased public investment raises output, both in the short term and in the long term, crowds in private investment, and reduces unemployment. Several factors shape the macroeconomic effects of public investment. When there is economic slack and monetary accommodation, demand effects are stronger, and the public-debt-to-GDP ratio may actually decline. Public investment is also more effective in boosting output in countries with higher public investment efficiency and when it is financed by issuing debt.

The authors provide various estimates of the government net capital stocks for a panel of 26 developing countries over the period 1970-2001. Two kinds of internationally comparable series of public capital stocks are presented. The first estimates are based on the standard perpetual inventory method and various assumptions regarding initial stocks and depreciation rates. The second set of estimates takes into account the potential inefficiency of public investments in creating capital with a nonparametric approach. Three estimates of net capital stocks are provided, on the basis of three assumptions regarding the efficiency of public investment.

A sweeping account of neoliberal governmental restructuring across the world, 'The Logic of Discipline' offers a powerful analysis of how this undemocratic model is unraveling in the face of a monumental-and ongoing-failure of the market.

The paper studies the dynamic allocation effects of tax policy in the context of an overlapping generations model of the Blanchard-Yaari type. The model is extended to allow for endogenous labor supply and three tax instruments: a capital income tax, labor income tax, and consumption tax. Analytical expressions and simple diagrams are used to discuss the impact, transition, and long-run effects of tax policy changes. It is shown that a part of the long-run incidence of capital and consumption taxes falls on capital when households’ horizons are finite, whereas labor would fully bear the burden of these taxes in an infinite horizon model.

Despite the voluminous literature on fiscal policy, very few papers focus on low-income countries (LICs). This paper develops a new-Keynesian small open economy model to show, analytically and through simulations, that some of the prevalent features of LICs—different types of financing including aid, the marginal efficiency of public investment, and the degree of home bias—play a key role in determining the effects of fiscal policy and related multipliers in these countries. External financing like aid increases the resource envelope of the economy, mitigating the private sector crowding out effects of government spending and pushing up the output multiplier. The same external financing, however, tends to appreciate the real exchange rate and as a result, traded output can respond quite negatively, reducing the overall output multiplier. Although capital scarcity implies high returns to public capital in LICs, declines in public investment efficiency can substantially dampen the output multiplier. Since LICs often import substantial amounts of goods, public investment may not be as effective in stimulating domestic production in the short run.

This book provides a comprehensive analysis of national fiscal policies in the European Union and in the European Monetary Union. Adopting a critical perspective, the book offers a deep insight into the consequences of the current strategy of national fiscal policies on economic activity.

Having the high unemployment in Germany in mind, this book discusses how macroeconomic theory has evolved over the past forty years. It shows that in recent years a convergence has taken place, with modern models embodying a Keynesian transmission mechanism, monetarist policy implication, and modeling techniques inspired by new classical economics and real business cycle theory. It also probes in which direction models may be extended from here. Empirically, the book uses different econometric techniques to investigate the relevance and implications of different macroeconomic theories for German data. A key question this book investigates is the role of demand and supply side conditions for the increase in the German unemployment rate. On a policy level, the book relates the implications of the different theories to the ongoing debate on the appropriate roles of demand and supply side policies for curing the German unemployment problem.