Is government spending stimulative?
This paper develops and implements a neoclassical model of fiscal policy. The paper's main empirical hypothesis is that government non-military investment spending is more expansionary than is either government consumption or military investment. The paper utilizes annual data to support the hypothesis. It finds that output "multipliers" for government non-military investment significantly exceed unity while multipliers for government consumption and military investment lie below unity. The paper also finds that public sector deficits-both actual and cyclically adjusted-contain minor explanatory power for output when one controls for the effects of non-military investment. Copyright 1990 Western Economic Association International.
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