Document Type

Journal Article

Department/Unit

Department of Economics

Title

Government expenditures and economic growth: The supply and demand sides

Language

English

Abstract

This paper uses a new approach to estimate how government expenditures affect the growth rate of real GDP. They affect the growth rate through three channels - total factor productivity, investment and aggregate demand. We find that apart from government investment, all government expenditures have negative marginal effects on productivity and GDP growth. In particular, a 1 percentage point increase in the share of government consumption in GDP reduces the equilibrium GDP growth rate by 0.216 percentage points, while the same increase in government investment raises the growth rate by 0.167 percentage points. This suggests that a reallocation of 1 percentage point of government consumption to government investment can raise the growth rate by 0.38 percentage points. © 2007 Institute for Fiscal Studies.

Publication Date

2007

Source Publication Title

Fiscal Studies

Volume

28

Issue

4

Start Page

497

End Page

522

Publisher

Wiley

DOI

10.1111/j.1475-5890.2007.00065.x

ISSN (print)

01435671

ISSN (electronic)

14755890

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