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Government spending multipliers: Is there a difference between government consumption and investment purchases?

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  • Haug, Alfred A.
  • Sznajderska, Anna

Abstract

This paper empirically studies the U.S. multiplier effects of government investment, government consumption and total government purchases on output. We explore dependencies of the multipliers on states of the economy, measured in different ways. Using local projections with instrumental variables, we find that a model without state-dependencies and using total government spending (instead of its components) provides the best fit to post-WWII data. These results are robust to various alternative specifications. We account for the COVID-19 period with a pandemic stringency index and for monetary policy shocks with a shadow interest rate. The government spending multiplier is approximately 0.5.

Suggested Citation

  • Haug, Alfred A. & Sznajderska, Anna, 2024. "Government spending multipliers: Is there a difference between government consumption and investment purchases?," Journal of Macroeconomics, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:jmacro:v:79:y:2024:i:c:s0164070423000848
    DOI: 10.1016/j.jmacro.2023.103584
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    Keywords

    Government investment and government consumption multipliers; COVID-19; Local projections;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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