02216cas a2200253 a 4500 AALejournalIMF004826 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451867329 1018-5941 BD-DhAAL BD-DhAAL Tchakarov, Ivan. Assessing the Impact of a Change in the Composition of Public Spending : A DSGE Approach / Ivan Tchakarov, Roland Straub. Washington, D.C. : International Monetary Fund, 2007. 1 online resource (47 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Despite intense calls for safeguarding public investment in Europe, public investment expenditure, when measured in relation to GDP, has steadily fallen in the last three decades, evoking fears that economic activity may be correspondingly negatively affected. At the same time, however, public consumption in the EU-12 countries has trended up. In this paper, we provide a macroeconomic assessment of the observed change in the composition of public spending in the euro area in a medium-scale two-country dynamic stochastic general equilibrium (DSGE) model. First, we identify the channels through which both temporary and permanent public investment shocks generate larger fiscal multipliers than exogenous increases in public consumption. Second, we quantify the negative impact of a change in fiscal stance, characterized by a permanent rise in public consumption and a permanent fall in public investment, keeping the overall level of public spending constant. The key message of the paper is that calls for reversing the observed trend in the composition of public spending are well justified. Mode of access: Internet Straub, Roland. IMF Working Papers; Working Paper ; No. 2007/168 Full text available on IMF http://elibrary.imf.org/view/journals/001/2007/168/001.2007.issue-168-en.xml IMF e-Library