Detailed Discussion on the Multiplier Effect of Public Investment in Japan : Policy Simulations Using the Short - Term Multi - Sector Econometric Model

Using the short-term multi-sector econometric model, this paper discusses in detail the multiplier effect of public investment in Japan. After examining its fundamental characteristics, the differ ence in government investment multiplier by the pattern of investment distribution among indus tries and the factors causing such a difference are analyzed. According to the simulation results, the multiplier becomes large when public investment is allocated more to the agriculture, con struction, and tertiary industries. The causal factors identified are the sectoral differences in: (1) marginal and average propensity to import; (2) column sum of Leontief inverse matrix coeffi cients; (3) net indirect tax rate; and (4) marginal propensities to employ and invest.