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Employment and Output Effects of Government Spending: Is Government Size Important?

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  • Karras, Georgios

Abstract

The effects of government spending on employment and output may depend on government size and the persistence of spending. The empirical results suggest that permanent (or persistent) changes in government consumption have a greater impact on output and employment than temporary (or cyclical) changes. This implies a negative wealth effect and reduces the stabilization potency of government spending. The findings also support the hypothesis that the output elasticity of government consumption is positive but declines with increases in government size. Using the estimated equations, the author calculates the optimal government size for the representative country at around 20 percent of GDP. Copyright 1993 by Oxford University Press.

Suggested Citation

  • Karras, Georgios, 1993. "Employment and Output Effects of Government Spending: Is Government Size Important?," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 354-369, July.
  • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:3:p:354-69
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    Cited by:

    1. Sefa Awaworyi Churchill & Mehmet Ugur & Siew Ling Yew, 2017. "Does Government Size Affect Per-Capita Income Growth? A Hierarchical Meta-Regression Analysis," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 142-171, March.
    2. Saeid Mahdavi & Emmanuel Alanis, 2013. "Public expenditures and the unemployment rate in the American states: panel evidence," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2926-2937, July.
    3. C.E. Weber, 2000. "Government Purchases, Government Transfers, and the Post-1970 Slowdown In U.S. Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 18(1), pages 107-123, January.
    4. Alleyne, K.A. & Lewis-Bynoe, D. & Moore, W., 2004. "An Assessment of the Growth-Enhancing Size of Government in the Caribbean," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(3).
    5. Hassan Aly & Mark Strazicich, 2000. "Is Government Size Optimal in the Gulf Countries of the Middle East? An empirical investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(4), pages 475-483.
    6. Thomas E. Borcherding & J. Stephen Ferris & Andrea Garzoni, 2001. "Growth in the Real Size of Government since 1970," Claremont Colleges Working Papers 2001-30, Claremont Colleges.
    7. Ahmet AYSU & Gökhan DÖKMEN, 2011. "An Investigation on the Relationship between Government Size and Unemployment Rate: Evidence from OECD Countries," Sosyoekonomi Journal, Sosyoekonomi Society, issue 16(16).
    8. Burton A. Abrams & Siyan Wang, 2006. "The Effect of Government Size on the Steady-State Unemployment Rate: A Structural Error Correction Model," Working Papers 06-05, University of Delaware, Department of Economics.
    9. Burton A. Abrams & Siyan Wang, 2007. "The Effect of Government Size on the Steady-State Unemployment Rate: An Error Correction Model," Working Papers 07-14, University of Delaware, Department of Economics.
    10. Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
    11. Geoffrey Wyatt, 2005. "Government Consumption and Industrial Productivity: Scale and Compositional Effects," Journal of Productivity Analysis, Springer, vol. 23(3), pages 341-357, July.
    12. Siyan Wang & Burton A. Abrams, 2011. "The Effect of Government Size on the Steady-State Unemployment Rate: A Dynamic Perspective," Working Papers 11-12, University of Delaware, Department of Economics.
    13. Dudley, Leonard & Montmarquette, Claude, 1999. "Le secteur public : moteur de croissance ou obstruction à l’industrie?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 357-377, mars-juin.
    14. Horst Feldmann, 2006. "Government Size and Unemployment: Evidence from Industrial Countries," Public Choice, Springer, vol. 127(3), pages 443-459, June.

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