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The Long-Run Effects of Government Spending

Author

Listed:
  • Surico, Paolo
  • Antolin-Diaz, Juan

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

  • Surico, Paolo & Antolin-Diaz, Juan, 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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    More about this item

    Keywords

    Government R&D; Long-run; TFP; Innovation; Output multiplier; inflation;
    All these keywords.

    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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