The Effects of Government Spending: A Disaggregated Approach

Matthias Burgert and Pedro Gomes

VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis from Verein für Socialpolitik / German Economic Association

Abstract: We disaggregate government spending into five macroeconomic-relevant components: average wage, employment, purchases of intermediate goods and services, investment and transfers. We set up a simple RBC model with only search and matching frictions in the labour market to show that these components have different, quantitative and sometimes qualitative, effects on output, private wages and employment, the unemployment rate and private consumption. Using simulated data we show that a VAR with aggregate government spending and output does not identify any type of fiscal shock. We then use the several identification strategies proposed in the literature to understand the effects of different components, for the United States. We find that both the average wage and employment have larger multipliers than purchases of intermediate goods, investment and transfers. They also have distinct effects on private wages and private consumption.

Keywords: Government; spending (search for similar items in EconPapers)
JEL-codes: E62 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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