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Government Expenditures and Economic Growth: The Supply and Demand Sides

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  • Pak Hung Mo

Abstract

This paper uses a new approach to estimate how government expenditures affect the growth rate of real GDP. They affect the growth rate through three channels - total factor productivity, investment and aggregate demand. We find that apart from government investment, all government expenditures have negative marginal effects on productivity and GDP growth. In particular, a 1 percentage point increase in the share of government consumption in GDP reduces the equilibrium GDP growth rate by 0.216 percentage points, while the same increase in government investment raises the growth rate by 0.167 percentage points. This suggests that a reallocation of 1 percentage point of government consumption to government investment can raise the growth rate by 0.38 percentage points. Copyright 2007 Institute for Fiscal Studies.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 28 (2007)
Issue (Month): 4 (December)
Pages: 497-522

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Handle: RePEc:ifs:fistud:v:28:y:2007:i:4:p:497-522

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Cited by:
  1. Roberto Ezcurra & Andrés Rodríguez-Pose, 2010. "Is Fiscal Decentralization Harmful for Economic Growth? Evidence from the OECD Countries," SERC Discussion Papers 0051, Spatial Economics Research Centre, LSE.
  2. Diego Enrique Pinilla Rodríguez & Juan de Dios Jiménez Aguilera & Roberto Montero Granados, 2013. "Gasto público y crecimiento económico. Un estudio empírico para América Latina," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.
  3. Mo, Pak Hung, 2011. "Trade Liberalization Sequence for Sustained Economic Growth," MPRA Paper 28917, University Library of Munich, Germany.
  4. Nikopour, Hesam & Shah Habibullah, Muzafar, 2010. "Shadow Economy and Poverty," MPRA Paper 23599, University Library of Munich, Germany.

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