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On the multiplicative effect of government spending (or any other spending for that matter)

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  • Jo~ao P. da Cruz

Abstract

There is, among the economist ecosystem, the idea of virtuous public spending as a form of promotion of economic growth. If we think on the way GDP is measured, it is not possible to get that conclusion because it becomes circular: measuring the money flow obviously will detect directly the public spending but always mixed with the flow of money from other sources. The question is how virtuous is public spending per se? Can it promote economic growth? Is there multiplicative effect in GDP bigger than 1? In this paper, we make use of the first principles of Economics to show that government spending is, at the most, as virtuous as private consumption and can be a source of economic depression and inequality if it is not restricted to fundamental services.

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  • Jo~ao P. da Cruz, 2015. "On the multiplicative effect of government spending (or any other spending for that matter)," Papers 1502.00808, arXiv.org.
    • Handle: RePEc:arx:papers:1502.00808
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    References listed on IDEAS

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    1. Robert E. Hall, 2009. "By How Much Does GDP Rise If the Government Buys More Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 183-249.
    2. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    3. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
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