Public Investment, public debt and macroeconomic performance

M. Ismihan, G. Ozkan

Research output: Contribution to journalArticlepeer-review


This paper provides an assessment of public capital spending within a macroeconomic policy model with explicit monetary and fiscal interactions, in contrast to most of the existing analyses of public investment that utilize “real” general equilibrium models. As such, we are able to consider the interactions of public investment with inflation, taxation, and public debt. Our results indicate that a clear trade-off exists between the costs and benefits of public investment, as is the case in the existing literature. However, the use of a monetary-fiscal policy model rather than a “real” general equilibrium one enables us to trace the macroeconomic channels including monetary ones through which these costs and benefits are transmitted to the rest of the economy. To the extent that these costs and benefits vary between countries, our results provide a potential explanation for the mixed empirical findings on the real effects of public capital spending.
Original languageEnglish
Pages (from-to)265-278
Number of pages14
JournalMacroeconomic Dynamics
Issue number2
Publication statusPublished - Apr 2011

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