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Do Government Purchases Affect Unemployment?

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  • Steinar Holden
  • Victoria Sparrman

Abstract

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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Keywords: fiscal policy; unemployment;

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Find related papers by JEL classification:
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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Cited by:

  1. Pascal Michaillat, 2014. "A theory of countercyclical government multiplier," LSE Research Online Documents on Economics 50247, London School of Economics and Political Science, LSE Library.

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