...Measuring the Effect of Infrastructure Spending on GDP, Woodward and Hall: The Obama administration’s focus on infrastructure spending raises the natural question of the effect of government purchases on total GDP. Does government spending stimulate other categories of spending, especially consumer spending? Or does government spending displace other categories, so GDP rises by less than the amount the government spends?
Valerie Ramey has written a paper with the results of her recent work on the question and with a full bibliography of earlier work. Her answer is that consumption and other categories stay about the same when the government spends more. In other words, the increase in GDP is about equal to the increase in government spending. To focus on changes in government spending that are not themselves responding to conditions in the economy, she considers military spending. She finds that GDP rises by about the same amount as an increase in military spending. ... [see original post for graphs]...MORE
Mark Thoma comments:
Susan Woodward and Bob Hall say the multiplier for infrastructure spending is likely to be around 1.0...
...Looks like a trillion dollars may not be enough.
Take a look at the comments, they get a sharp crowd.
HT: naked capitalism