The impact of government investment on business cycle

The paper is devoted to analyzing the impact of government investment on the economic cycle theoretically and empirically based on IS-LM model. The findings show that there is no relevance between government investment and macroeconomic volatility; To the three industries, the central government investment and local government investment render no effect on the first industry and the third industry are not affected, but faint impact on the second industry; comparatively, local government investment is more effective than central investment in influencing the second industry. The analyses also found that government investment influenced the second industry significantly in short run and faintly in the medium term and government investment has no effect in long term. © 2010 IEEE.