Industry Evidence on the Effects of Government Spending

Christopher J. Nekarda · Valerie Ramey

107 citations0/0 files storedAmerican Economic Journal Macroeconomics

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Fiscal Policy and Economic Growth Monetary Policy and Economic Impact Economic Theory and Policy

Abstract

This paper investigates the effects of government purchases at the industry level in order to shed light on the transmission mechanism for government spending on the aggregate economy. We create a new panel dataset that matches output and labor variables to industry-specific shifts in government demand. An increase in government demand raises output and hours, lowers real product wages and labor productivity, and has no effect on the markup. The estimates also imply approximately constant returns to scale. The findings are more consistent with the effects of government spending in the neoclassical model than the textbook New Keynesian model. (JEL E12, E23, E62, H50)

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References

2019American Economic Review 1967The Explanation of Productivity Change 2007Understanding the Effects of Government Spending on Consumption 2011Identifying Government Spending Shocks: It's all in the Timing*1990Fiscal Policy in General Equilibrium 1997Returns to Scale in U.S. Production: Estimates and Implications 1998Costly capital reallocation and the effects of government spending 2003Estimating the Effects of Fiscal Policy in OECD Countries

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2019Government Spending and Corporate Innovation 2011On Measuring the Effects of Fiscal Policy in Recessions 2015Multipliers of unexpected increases in defense spending: An empirical investigation 2024Macroeconomic Frameworks: Reconciling Evidence and Model Predictions from Demand Shocks 2015Real wages in the business cycle and the theory of income distribution: an unresolved conflict between theory and facts in mainstream macroeconomics 2017Logit, CES, and Rational Inattention

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