The Changing Structure of Government Consumption Spending

64 Pages Posted: 14 Dec 2018

See all articles by Alessio Moro

Alessio Moro

University of Cagliari

Omar Rachedi

Banco de España

Date Written: December 11, 2018

Abstract

We document a secular increase in the share of purchases from the private sector in government consumption spending: over time the government purchases relatively more private-sector goods, and relies less on its own production of value added. We build a general equilibrium model in which investment-specific technological change accounts for the changing structure of government spending. The model predicts that this secular process alters the transmission of government spending shocks by raising the response of private value added, while dampening the response of hours. We validate these results with novel empirical evidence on the effects of government spending across countries.

Keywords: government gross output, government wage bill, fiscal multiplier

JEL Classification: E62, H10, O41

Suggested Citation

Moro, Alessio and Rachedi, Omar, The Changing Structure of Government Consumption Spending (December 11, 2018). Banco de Espana Working Paper No. 1840, Available at SSRN: https://ssrn.com/abstract=3299569 or http://dx.doi.org/10.2139/ssrn.3299569

Alessio Moro (Contact Author)

University of Cagliari ( email )

Via S.Ignazio 17
Cagliari, CA
Italy

HOME PAGE: http://economia.unica.it/deca/

Omar Rachedi

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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