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Do Government Purchases Affect Unemployment?

  • Steinar Holden
  • Victoria Sparrman

We investigate empirically the effect of government purchases on unemployment in 20 OECD countries, for the period 1960-2007. Compared to earlier studies we use a data set with more variation in unemployment, and which allows for controlling for a host of factors that influence the effect of government purchases. We find that increased government purchases lead to lower unemployment; an increase equal to one percent of GDP reduces un-employment by 0.2 percentage point in the same year. The effect is greater in downturns than in booms, and also greater under a fixed exchange rate regime than under a floating regime.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3482.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3482
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