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The Long-Run Effects of Government Spending

Author

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  • Antolin-Diaz, Juan
  • Surico, Paolo

Abstract

Military spending has sizable effects on long-run growth because it shifts the composition of public spending towards R&D. This boosts innovation and private investment in the medium-term, and increases productivity and output at longer horizons. Public R&D expenditure stimulates long-run growth even when it is not associated with war spending. In contrast, the effects of public investment are shorter-lived and the impact of public consumption is modest at most horizons. We reach these conclusions using Bayesian Vector Auto Regressions (BVAR) with up to sixty lags and 125 years of quarterly data for the United States, including newly reconstructed series of government spending broken down into its main categories since 1890.

Suggested Citation

  • Antolin-Diaz, Juan & Surico, Paolo, 2022. "The Long-Run Effects of Government Spending," CEPR Discussion Papers 17433, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17433
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    2. Ying, Limeng & Bao, Mengqi & Yang, Jie, 2025. "Institutional trust as a catalyst: Government procurement and private firms’ risk-taking in China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 2437-2457.
    3. Burilkov, Alex & Bushnell, Katelyn & Mejino-López, Juan & Morgan, Thomas & Wolff, Guntram B., 2025. "Fit for war by 2030? European rearmament efforts vis-à-vis Russia," Kiel Reports 3, Kiel Institute for the World Economy.
    4. De Graeve, Ferre & Westermark, Andreas, 2025. "Long-lag VARs," Journal of Monetary Economics, Elsevier, vol. 156(C).
    5. Bowen Fu & Chenghan Hou & Jan Pruser, 2025. "Assessing the Effects of Monetary Shocks on Macroeconomic Stars: A SMUC-IV Framework," Papers 2510.05802, arXiv.org, revised Dec 2025.
    6. Haroutunian, Stephan & Nerlich, Carolin & Rodríguez-Vives, Marta & Schauhoff, Caspar, 2026. "Boosting efficiency in public investment in times of fiscal constraint," Economic Bulletin Articles, European Central Bank, vol. 2.
    7. Hie Joo Ahn & Yunjong Eo, 2025. "Hysteresis and the Role of Downward Nominal Wage Rigidity: Evidence from U.S. States," Finance and Economics Discussion Series 2025-062r1, Board of Governors of the Federal Reserve System (U.S.), revised 16 Dec 2025.
    8. Schularick, Moritz & Binder, Johannes, 2026. "Time to spend smart," Kiel Policy Briefs 204, Kiel Institute for the World Economy.
    9. Alexandr Burilkov & Katelyn Bushnell & Juan Majino-Lopez & Thomas Morgan & Guntram Wolff, 2025. "Bruegel-Kiel Report - Fit for War by 2030? European Rearmament Efforts vis-à-vis Russia," Working Papers ECARES 2025-10, ULB -- Universite Libre de Bruxelles.
    10. Alessandra Cepparulo & Luisa Giuriato & Paolo Pasimeni, 2025. "Defence Spending in the European Union: Evolution and Perspectives," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 67(4), pages 918-948, December.
    11. Lukas Vogel, 2025. "Reforms and Investments – The Benefits of Join Implementation," European Economy - Economic Briefs 084, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    12. Damiano Di Francesco & Omar Pietro Carnevale, 2025. "Are Hysteresis Effects Nonlinear?," LEM Papers Series 2025/32, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    13. Gazi Salah Uddin & Anh H. Le & Naoki Yago & John Beirne & Donghyun PARK, 2026. "Global Fragmentation, Fiscal Policy, and Economic Growth: A Cross-country Analysis," Working Papers wp62, South East Asian Central Banks (SEACEN) Research and Training Centre, revised Feb 2026.
    14. Lavinia Piemontese & Andrea Tulli, 2026. "Public Demand Allocation and Productivity of the Private Sector," Working Papers wp1218, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Fabio Franceschini, 2025. "The Innovation Long-Run Risk Component," Working Papers wp1215, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. Giovanna Ciaffi & Matteo Deleidi & Mariana Mazzucato, 2026. "Directed Innovation Policies and the Supermultiplier: New Evidence," FMM Working Paper 122-2026, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    17. McClung, Nigel, 2025. "Why should fiscal imbalances concern policymakers at independent inflation-targeting central banks?," BoF Economics Review 4/2025, Bank of Finland.

    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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