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Do Government Purchases Affect Unemployment?

Author

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  • Holden, Steinar

    () (Dept. of Economics, University of Oslo)

  • Sparrman, Victoria

    () (Dept. of Economics, University of Oslo)

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 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.

Suggested Citation

  • Holden, Steinar & Sparrman, Victoria, 2011. "Do Government Purchases Affect Unemployment?," Memorandum 17/2011, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2011_017
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    References listed on IDEAS

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    Cited by:

    1. Pascal Michaillat, 2014. "A Theory of Countercyclical Government Multiplier," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(1), pages 190-217, January.

    More about this item

    Keywords

    Fiscal policy; unemployment;

    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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