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Is Government Spending Stimulative?

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  • DAVID ALAN ASCHAUER

Abstract

This paper develops and implements a neoclassical model of fiscal policy. The paper's main empirical hypothesis is that government non‐military investment spending is more expansionary than is either government consumption or military investment. The paper utilizes annual data to support the hypothesis. It finds that output “multipliers” for government non‐military investment significantly exceed unity while multipliers for government consumption and military investment lie below unity. The paper also finds that public sector deficits—both actual and cyclically adjusted—contain minor explanatory power for output when one controls for the effects of non‐military investment.

Suggested Citation

  • David Alan Aschauer, 1990. "Is Government Spending Stimulative?," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 30-46, October.
  • Handle: RePEc:bla:coecpo:v:8:y:1990:i:4:p:30-46
    DOI: 10.1111/j.1465-7287.1990.tb00300.x
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    Cited by:

    1. Davtyan Azat, 2014. "GMM Estimation and Shapiro-Francia Normality Test: A Case Study of CEE Economies," International Journal of Economic Sciences, Prague University of Economics and Business, vol. 2014(1), pages 12-26.
    2. Vitor M. Carvalho & Manuel M. F. Martins, 2011. "Macroeconomic effects of fiscal consolidations in a DSGE model for the Euro Area: does composition matter?," FEP Working Papers 421, Universidade do Porto, Faculdade de Economia do Porto.
    3. G.E. Hebbink, 2000. "Demographic ageing and sustainability of fiscal policy: projections with a renewed generational accounting model," WO Research Memoranda (discontinued) 609, Netherlands Central Bank, Research Department.
    4. Benjamin Adelwini Bugri & Appiah Michael & School of Management Science & Engineering Department of Finance & Economics Jiangsu University Zhenjiang, Jiangsu, China & Emmanuel Awusi Arthur, 2019. "Investigating the Impact of Sustainable Procurement on Economic Growth and Development," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 5(2), pages 67-76.
    5. Pula Lekë & Elshani Alban, 2018. "Role of Public Expenditure in Economic Growth: Econometric Evidence from Kosovo 2002–2015," Baltic Journal of Real Estate Economics and Construction Management, Sciendo, vol. 6(1), pages 74-87, June.
    6. Fu, Feng-Cheng & Vijverberg, Chu-Ping C. & Vijverberg, Wim P., 2004. "Public Infrastructure as a Determinant of Intertemporal and Interregional Productive Performance in China," IZA Discussion Papers 1019, Institute of Labor Economics (IZA).
    7. Ansari, M. I., 1996. "Monetary vs. fiscal policy: Some evidence from vector autoregression for India," Journal of Asian Economics, Elsevier, vol. 7(4), pages 677-698.
    8. Ansari, M. I., 2002. "Impact of financial development, money, and public spending on Malaysian national income: an econometric study," Journal of Asian Economics, Elsevier, vol. 13(1), pages 72-93.
    9. Sutaria, Vinod & Hicks, Donald, 2002. "The determinants of new firm formation dynamics," ERSA conference papers ersa02p399, European Regional Science Association.
    10. N Bose & M E Haque & D R Osborn, 2003. "Public Expenditure and Growth in Developing Countries: Education is the Key," Centre for Growth and Business Cycle Research Discussion Paper Series 30, Economics, The University of Manchester.
    11. Andrés Rodríguez-Pose & Sylvia A. R. Tijmstra & Adala Bwire, 2007. "Fiscal decentralisation, efficiency, and growth," Working Papers 2007-11, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
    12. Rajkumar, Andrew Sunil*Swaroop, Vinaya, 2002. "Public spending and outcomes : does governance matter?," Policy Research Working Paper Series 2840, The World Bank.
    13. Ramirez, Miguel D., 2006. "Is foreign direct investment beneficial for Mexico? An empirical analysis, 1960-2001," World Development, Elsevier, vol. 34(5), pages 802-817, May.
    14. Michael Koetter & Michael Wedow, 2013. "Transfer Payments without Growth: Evidence for German Regions, 1992–2005," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 37(4), pages 1438-1455, July.
    15. Adedayo A. Adepoju & Tayo P. Ogundunmade, 2019. "Economic Growth And Its Determinants: A Cross-Country Evidence," Statistics in Transition New Series, Polish Statistical Association, vol. 20(2), pages 69-84, June.
    16. Lorena Çakerri & Migena Petanaj & Oltiana Muharremi, 2014. "The Effect of Government Expenditures on Economic Growth. the Case of Albania," European Journal of Social Sciences Education and Research Articles, European Center for Science Education and Research, vol. 1, September.
    17. Sharon J. Erenburg, "undated". "Linking Public Capital to Economic Performance, Public Capital: The Missing Link Between Investment and Economic Growth ," Economics Public Policy Brief Archive 14, Levy Economics Institute.
    18. Vitor Carvalho & Manuel M. F. Martins, 2011. "Investment and output effects of fiscal consolidations in a new-Keynesian DSGE model for the Euro Area: composition matters?," EcoMod2011 3246, EcoMod.
    19. Miguel D. Ramirez, 2006. "Does Foreign Direct Investment Enhance Labor Productivity Growth in Chile? A Cointegration Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 32(2), pages 205-220, Spring.
    20. Miguel Ramirez & Zsófia Kőműves, 2014. "Economic Infrastructure, Private Capital Formation, and FDI Inflows to Hungary: A Unit Root and Cointegration Analysis with Structural Breaks," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(4), pages 367-382, December.
    21. Allcott, Hunt & Lederman, Daniel & Lopez, Ramon, 2006. "Political institutions, inequality, and agricultural growth : the public expenditure connection," Policy Research Working Paper Series 3902, The World Bank.
    22. Andrew R. Goetz, 2011. "The Global Economic Crisis, Investment in Transport Infrastructure, and Economic Development," Chapters, in: Kenneth Button & Aura Reggiani (ed.), Transportation and Economic Development Challenges, chapter 3, Edward Elgar Publishing.

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