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Do Government Purchases Affect Unemployment?

  • Holden, Steinar


    (Dept. of Economics, University of Oslo)

  • Sparrman, Victoria


    (Dept. of Economics, University of Oslo)

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 unemployment 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 Oslo University, Department of Economics in its series Memorandum with number 17/2011.

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Length: 41 pages
Date of creation: 23 May 2011
Date of revision:
Handle: RePEc:hhs:osloec:2011_017
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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