Public works as countercyclical fiscal policy

by Georges Vernez

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Describes research at RAND on assessing the job creation effects of alternative public works investments, and identifies factors that might improve the design of countercyclical public works programs. Some findings: (1) No single countercyclical program can effectively target all regions, industries and groups in the labor force. (2) Public works projects do effectively target industries most affected by recessions--construction and durable goods, but the ability to target a specific region is lower than public service employment and revenue-sharing programs. Also, they do not target certain groups, such as youths and females. The key problems in a countercyclical public works program are reducing legislative lag, and avoiding local bottlenecks in the construction sector. This can be minimized by: (1) Automatic release of funds under prespecified economic conditions. (2) Distributing funds among areas according to availability of construction workers and whether local cycles are leading or lagging a national recession.

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