The Changing Structure of Government Consumption Spending
64 Pages Posted: 14 Dec 2018
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: Suggested Citation