The Effects of Government Spending: A Disaggregated Approach
We disaggregate government spending into five macroeconomic-relevant components: average wage, employment, purchases of intermediate goods and services, investment and transfers. We set up a simple RBC model with only search and matching frictions in the labour market to show that these components have different, quantitative and sometimes qualitative, effects on output, private wages and employment, the unemployment rate and private consumption. Using simulated data we show that a VAR with aggregate government spending and output does not identify any type of fiscal shock. We then use the several identification strategies proposed in the literature to understand the effects of different components, for the United States. We find that both the average wage and employment have larger multipliers than purchases of intermediate goods, investment and transfers. They also have distinct effects on private wages and private consumption.
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| Length: | |
| Date of creation: | 2011 |
| Handle: | RePEc:zbw:vfsc11:48690 |
| Contact details of provider: | Web page: http://www.socialpolitik.org/ Email: More information through EDIRC
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- Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-110, May.
- Valerie A. Ramey, 2011.
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- Pedro Gomes, 2011. "Fiscal policy and the labour market: the effects of public sector employment and wages," European Economy - Economic Papers 2008 - 2015 439, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Evi Pappa, 2009. "The Effects Of Fiscal Shocks On Employment And The Real Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 217-244, 02.
- Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
- Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
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