Industry evidence on the effects of government spending

Christopher Nekarda and Valerie Ramey

No 2010-28, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Expenditures, Public; Government spending policy (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2010-28

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