Abstract
This paper studies how the multiplier effects of public investment under deflation economy differ from those under inflation economy. And this study seeks the necessary size and period of impact to recover from deflation by Keynesian model, focusing on presence or absence of crowding out of public investment under deflationary recession. In particular, the primary purpose of this study is empirical analysis of the effects by public investment under many policy scenarios, such as the investment on reconstruction of the Great East Japan Earthquake or the construction of the New Tomei Expressway. The results show that since crowding out does not occur under deflation, multiplier effect would be higher (approximately 0.2 point) than that under inflation. Moreover, assuming that the current financial situation continues, the deflation will be diminished if the size of public investment of the 1990s continues.
