 The composition of public spending and the inflationary effects of fiscal policy shocksMathias Klein and Ludger Linnemann European Economic Review, 2023, vol. 155, issue C Abstract: The paper uses structural proxy-vector autoregressions to separately identify shocks to US government investment and government consumption expenditures. Positive public investment shocks robustly raise inflation and have a weak and insignificant impact on labor productivity. In contrast, positive public consumption shocks induce a significant fall in inflation together with a strong and persistent increase in hourly productivity. The empirical findings are consistent with a model where demand shocks have an endogenous effect on productivity due to variable technology utilization. Increases in government investment, despite adding to a productive public capital stock, induce a relatively low endogenous increase in productivity and goods supply in the short run and thus are inflationary, whereas government consumption shocks can lead to a temporary productivity increase and inflation decrease if technology utilization is relatively inexpensive to vary. Keywords: Government investment; Government consumption; Inflation; Endogenous productivity; Proxy-vector autoregressions (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:155:y:2023:i:c:s0014292123000892 DOI: 10.1016/j.euroecorev.2023.104460 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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