Sectoral Composition of Government Spending and Macroeconomic (In)stability

Jang-Ting Guo, Juin-jen Chang, Jhy-yuan Shieh and Wei-Neng Wang (wei7656@gmail.com)
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Wei-Neng Wang: Soochow University

No 201305, Working Papers from University of California at Riverside, Department of Economics

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 consumption 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 model's local dynamics, and that a sufficiently high public-investment share can stabilize the economy against endogenous belief-driven cyclical aÌ uctuations. When each type of government spending is postulated as a constant proportion of the economyiÌ s total output, we find that there exists a trade-o§ 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)
Date: 2013-09, Revised 2013-09
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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https://economics.ucr.edu/repec/ucr/wpaper/13-05.pdf First version, 2013 (application/pdf)

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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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201305

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