The Long-Run Effects of Government Spending

Juan Antolin-Diaz and Paolo Surico

No 17433, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Military spending has sizable effects on long-run growth because it shifts the composition of public spending towards R&D. This boosts innovation and private investment in the medium-term, and increases productivity and output at longer horizons. Public R&D expenditure stimulates long-run growth even when it is not associated with war spending. In contrast, the effects of public investment are shorter-lived and the impact of public consumption is modest at most horizons. We reach these conclusions using Bayesian Vector Auto Regressions (BVAR) with up to sixty lags and 125 years of quarterly data for the United States, including newly reconstructed series of government spending broken down into its main categories since 1890.

Keywords: Government R&D; Long-run; TFP; Innovation; Output multiplier; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E62 O40 (search for similar items in EconPapers)
Date: 2022-07
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