Government Spending and Private Activity
In: Fiscal Policy after the Financial Crisis
This paper asks whether increases in government spending stimulate private activity. The first part of the paper studies private spending. Using a variety of identification methods and samples, I find that in most cases private spending falls significantly in response to an increase in government spending. These results imply that the average GDP multiplier lies below unity. In order to determine whether concurrent increases in tax rates dampen the spending multiplier, I use two different methods to adjust for tax effects. Neither method suggests significant effects of current tax rate changes on the spending multiplier. In the second part of the paper, I explore the effects of government spending on labor markets. I find that increases in government spending lower unemployment. Most specifications and samples imply, however, that virtually all of the effect is through an increase in government employment, not private employment. I thus conclude that on balance government spending does not appear to stimulate private activity.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
12632.||Handle:|| RePEc:nbr:nberch:12632||Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gomes, Pedro Maia, 2010.
"Fiscal Policy and the Labour Market: The Effects of Public Sector Employment and Wages,"
IZA Discussion Papers
5321, Institute for the Study of Labor (IZA).
- Pedro Gomes, 2011. "Fiscal policy and the labour market: the effects of public sector employment and wages," European Economy - Economic Papers 439, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Alan J. Auerbach & Yuriy Gorodnichenko, 2012.
"Measuring the Output Responses to Fiscal Policy,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 4(2), pages 1-27, May.
- Mountford, A.W. & Uhlig, H.F.H.V.S., 2002.
"What are the Effects of Fiscal Policy Shocks?,"
2002-31, Tilburg University, Center for Economic Research.
- Andrew Mountford & Harald Uhlig, 2005. "What are the Effects of Fiscal Policy Shocks?," SFB 649 Discussion Papers SFB649DP2005-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Mountford, Andrew & Uhlig, Harald, 2002. "What are the Effects of Fiscal Policy Shocks?," CEPR Discussion Papers 3338, C.E.P.R. Discussion Papers.
- Andrew Mountford & Harald Uhlig, 2008. "What are the Effects of Fiscal Policy Shocks?," NBER Working Papers 14551, National Bureau of Economic Research, Inc.
- Brückner, Markus & Pappa, Evi, 2010. "Fiscal expansions affect unemployment, but they may increase it," CEPR Discussion Papers 7766, C.E.P.R. Discussion Papers.
- James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
- JonasD.M. Fisher & Ryan Peters, 2010.
"Using Stock Returns to Identify Government Spending Shocks,"
Royal Economic Society, vol. 120(544), pages 414-436, 05.
- Jonas D. M. Fisher & Ryan Peters, 2009. "Using stock returns to identify government spending shocks," Working Paper Series WP-09-03, Federal Reserve Bank of Chicago.
- Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(02), pages 222-240, April.
- Daniel J. Wilson, 2010. "Fiscal spending multipliers: evidence from the 2009 American Recovery and Reinvestment Act," Working Paper Series 2010-17, Federal Reserve Bank of San Francisco.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:12632. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.