IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v115y2025i7p2376-2413.html

The Long-Run Effects of Government Spending

Author

Listed:
  • Juan Antolin-Diaz
  • Paolo Surico

Abstract

Military spending has large and persistent effects on output because it shifts the composition of public spending toward R&D. This boosts innovation and private investment in the medium term and increases productivity and GDP at longer horizons. Public R&D expenditure stimulates economic activities beyond the business cycle even when it is not associated with war spending. In contrast, the effects of public investment are shorter-lived, while public consumption has a modest impact at most horizons. We reach these conclusions using BVAR with long lags and 125 years of US data, including newly reconstructed series of government spending by main categories since 1890.

Suggested Citation

  • Juan Antolin-Diaz & Paolo Surico, 2025. "The Long-Run Effects of Government Spending," American Economic Review, American Economic Association, vol. 115(7), pages 2376-2413, July.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:7:p:2376-2413
    DOI: 10.1257/aer.20231278
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/aer.20231278
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://doi.org/10.3886/E198830V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/23477
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/23478
    Download Restriction: no
    File URL: https://libkey.io/10.1257/aer.20231278?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Burilkov, Alex & Bushnell, Katelyn & Mejino-López, Juan & Morgan, Thomas & Wolff, Guntram B., 2025. "Fit for war by 2030? European rearmament efforts vis-à-vis Russia," Kiel Reports 3, Kiel Institute for the World Economy.
    2. Bowen Fu & Chenghan Hou & Jan Pruser, 2025. "Assessing the Effects of Monetary Shocks on Macroeconomic Stars: A SMUC-IV Framework," Papers 2510.05802, arXiv.org, revised Dec 2025.
    3. Hie Joo Ahn & Yunjong Eo, 2025. "Hysteresis and the Role of Downward Nominal Wage Rigidity: Evidence from U.S. States," Finance and Economics Discussion Series 2025-062r1, Board of Governors of the Federal Reserve System (U.S.), revised 16 Dec 2025.
    4. Alexandr Burilkov & Katelyn Bushnell & Juan Majino-Lopez & Thomas Morgan & Guntram Wolff, 2025. "Bruegel-Kiel Report - Fit for War by 2030? European Rearmament Efforts vis-à-vis Russia," Working Papers ECARES 2025-10, ULB -- Universite Libre de Bruxelles.
    5. Lukas Vogel, 2025. "Reforms and Investments – The Benefits of Join Implementation," European Economy - Economic Briefs 084, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Damiano Di Francesco & Omar Pietro Carnevale, 2025. "Are Hysteresis Effects Nonlinear?," LEM Papers Series 2025/32, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    7. Fabio Franceschini, 2025. "The Innovation Long-Run Risk Component," Working Papers wp1215, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Giovanna Ciaffi & Matteo Deleidi & Mariana Mazzucato, 2026. "Directed Innovation Policies and the Supermultiplier: New Evidence," FMM Working Paper 122-2026, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:115:y:2025:i:7:p:2376-2413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.