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
Link to Publisher's Edition
http://dx.doi.org/10.1111/j.1475-5890.2007.00065.x
ISSN (print)
01435671
ISSN (electronic)
14755890
APA Citation
Mo, P. (2007). Government expenditures and economic growth: The supply and demand sides. Fiscal Studies, 28 (4), 497-522. https://doi.org/10.1111/j.1475-5890.2007.00065.x