Limitations of Public Works Programme in Fighting Depression:
(1) The increase in government expenditure may reduce private investment. This would neutralize the employment effects of the public investment expenditure.
(2) There are a number of time lags, which may reduce the effectiveness of government expenditure in fighting depression.
In the first place, there is a time lag between the appearance of depression and its recognition by the government. The diagnosis of depression may take some months. It is also difficult to predict when the recession is giving way to depression and what would be its severity.
Secondly, there is a time lag between the recognition of the depression and the fiscal action to be taken. There is also a decision lag according to which public works are to start.
Thirdly, there are time lags due to planning for public works, which may take months. Moreover, the depression may be so sudden that there may be a time lag when fiscal action is necessary and the time when it is started.
(3) The time lag between successive spending and re-spending will delay the effectiveness of the multiplier.
(4) It may not be feasible for the Government to start public work programmes immediately to check the depression. In such a case public works programmes may not be very effective to check depression.
(5) The period of construction of the public work may not coincide with the deflationary phase of the trade cycle. This may also result in inflationary tendencies if the work on the projects is continued even after the deflationary phase is over.
(6) Limited Employment- The public works programme is not capable of assuring jobs to all caders of workers unemployed by a fall in aggregate demand. Such works are started only to absorb unskilled and semi-skilled persons and not the specialized.
(7) Depressing Effect on Private Enterprise- In certain areas like low-cost housing, the construction programmes undertaken by the government may compete with private investment and enterprise and even drive the latter out of business. In such a case public works will prove to be self-offsetting and the aggregate demand will possibly fail to increase.
(8) Un-even Effect and Mis-allocation of Resources- As the slump gets deepened, there is widespread unemployment of men and equipment. The public works can be located only at a few selected places. Therefore, these may have an uneven effect and may prove to be quite inadequate to meet the requirements. The immobility of factors of production may also prevent the economic utilization of the available resources.
(9) Political Consideration- Public works are often started in democratic countries in certain specific areas not on account of economic reasons. But, the political pressures at the national, State, and local levels sway the government’s decision. Consequently, the economic use of public works at the most may be very limited.
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