In this study, a macroeconometric model is built to investigate and to measure the impact of public investment on the Taiwan economy. The model considers potential GDP, in addition to incorporating the demand side of the domestic economy. Other salient features of the model are first that the potential supply of investible funds is derived from investible resources, which include gross domestic savings, import surplus, and the difference between potential and actual GDP. A second feature is that private investment is disaggregated into machinery, transportation equipment, and construction and housing components.
According to the results of the simulation presented in the paper, a once-and-for-all increase in public investment of 1 million NT dollars would generate a 0.44 million NT dollars increase in GDP during the first year, but would produce an accumulated increase of 1.44 million NT$ dollars over the course of 20 years. Since the savings of the public in the central bank are normally larger than the public debt, increasing public investment expenditures has little impact on the money supply, and therefore its influence on price levels is also limited.
