Industry Evidence on the Effects of Government Spending

Christopher Nekarda and Valerie Ramey

No 15754, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates industry-level effects of government purchases in order to shed light on the transmission mechanism for government spending on the aggregate economy. We begin by highlighting the different theoretical predictions concerning the effects of government spending on industry labor market equilibrium. We then create a panel data set that matches output and labor variables to shifts in industry-specific government demand. The empirical results indicate that increases in government demand raise output and hours, but lower real product wages and productivity. Markups do not change as a result of government demand increases. The results are consistent with the neoclassical model of government spending, but they are not consistent with the New Keynesian model of the effects of government spending.

JEL-codes: E24 E31 E62 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-cba and nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (9)

Published as Christopher J. Nekarda & Valerie A. Ramey, 2011. "Industry Evidence on the Effects of Government Spending," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 36-59, January.

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Journal Article: Industry Evidence on the Effects of Government Spending (2011)
Working Paper: Industry evidence on the effects of government spending (2010)
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