Sectoral Composition of Government Spending and Macroeconomic (In)stability

Juin-jen Chang, Jang-Ting Guo, Jhy-Yuan Shieh () and Wei-Neng Wang ()
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Jhy-Yuan Shieh: Department of Economics, Soochow University, Taipei, Taiwan
Wei-Neng Wang: Department of Economics, Soochow University, Taipei, Taiwan

No 13-A010, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: This paper examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two-sector real business cycle model with positive productive externalities in investment. When government purchases of con- sumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public-consumption share plays no role in the models local dynamics, and that a sufficiently high public-investment share can stabilize the economy against endogenous belief-driven cyclical uctuations. When each type of government spending is postulated as a constant proportion of the economys total output, we find that there exists a trade-off between public consumption versus investment expenditures to yield saddle-path stability and equilibrium uniqueness.

Keywords: Government Spending; Equilibrium (In)determinacy; Business Cycles (search for similar items in EconPapers)
JEL-codes: E32 E62 O41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: SECTORAL COMPOSITION OF GOVERNMENT SPENDING AND MACROECONOMIC (IN)STABILITY (2015)
Working Paper: Sectoral Composition of Government Spending and Macroeconomic (In)stability (2013)
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