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The Changing Structure of Government Spending

Alessio Moro and Omar Rachedi

MPRA Paper from University Library of Munich, Germany

Abstract: We document that advanced economies experience a secular increase in the share of purchases from the private sector in total government spending, implying that over time governments purchase relatively more private-sector goods, and rely less on own production of value added. We build a calibrated general equilibrium model to show that this secular process can be accounted for by investment-specific technological change. We then use the model to measure the effect of this secular process on the transmission of fiscal policy, and find that (i) it shifts the stimulative effects of government spending towards private economic activity and (ii) it dampens the response of hours - but not of output - to fiscal shocks.

Keywords: Government Gross Output; Fiscal Multiplier (search for similar items in EconPapers)
JEL-codes: E62 H10 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2018-05-07
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