o:29460 Increasing public investment can be an effective policy in bad times Evidence from emerging EU economies en A B S T R A C T: Using Local projections and a Panel Structural Vector Auto-Regressive model, we evaluate the effectiveness of fiscal policy in the Central and East European EU economies. We find that an increase in public investment has a strong positive effect on output, employment, wages and consumption during periods of economic downturn. Deficit-financed public investment does not increase the debt-to-GDP ratio and is essentially self-financed. In contrast, an increase in public consumption has little impact on economic activity and increases the debt-to-GDP ratio. The observed short term effects concur with a neo-Keynesian pattern suggesting that increase in public investment boosts the demand for labor in the private sector, leading to higher real wages and higher con- sumption. In the medium term, an increase in public investment enhances private investment thus generating supply side effect. We conclude that public investment can be an important policy instrument for combatting recessions and stimulating long-run growth, since monetary policy has run out of steam. Financial support from the Ministry of Education, Science and Technological Development of the Republic of Serbia [Pavle Petrovic - grant 179005, Milojko Arsic - grant 179005, and Aleksandra Nojkovic - grants 179005 and 179065] Keywords: Fiscal multipliers, Public investment, Stabilisation policy, Keynesian vs. neoclassical view of fiscal policy, Emerging EU economies 1552099 10.1016/j.econmod.2020.02.004 1552101 0264-9993 2023-05-15T12:53:41.523Z 44 no 46 Pavle Petrović Univerzitet u Beogradu Ekonomski fakultet 12244327 Milojko Arsić Univerzitet u Beogradu Ekonomski fakultet person 13833319 0000-0001-9314-4174 Aleksandra Nojković Univerzitet u Beogradu Ekonomski fakultet person 12863591 0000-0002-6330-5587 application/pdf 6259054 https://phaidrabg.bg.ac.rs/o:29460 no yes 1 70 92000001 11A03 Economic Modelling 94 January 580 597 2021