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Revisiting the E ¤ ects of Government Spending Shocks on Consumption
| Content Provider | Semantic Scholar |
|---|---|
| Author | Lendvai, Julia Raciborski, Rafal |
| Copyright Year | 2011 |
| Abstract | This paper studies the impact of government consumption shocks in an estimated DSGE model of the US economy which extends the standard setup by specifying government consumption as the sum of government expenditures on goods and services and compensation of public employees. We show that accounting for the di¤erence in spending items is key in studying the impact of spending shocks. While an increase in government purchases leads to a fall in private consumption as in standard models, a similar increase in government employment or government wages can generate a rise in private consumption even for a fairly low share of ruleof-thumb consumers in the economy. This nding quali es some of the standard results in the literature. 1 Introduction This paper presents estimation results for an extension to the standard NewKeynesian dynamic stochastic general equilibrium model, which allows for a breakdown of nal government consumption into compensation of employees on one hand and government expenditure on goods and services on the other hand. Compensation of employees accounts for over 60% of nal government consumption in the United States and for over 50% in European Union member states. Notwithstanding, most of the theoretical literature focusing on the impact of nal government consumption speci es this variable as expenditure on goods and services only, entirely ignoring the part spent on compensation of employees. The views expressed in this paper belong to the authors only and do not necessarily correspond to those of the Directorate-General for Economic and Financial A¤airs or the European Commission. yEuropean Commission, DG Economic and Financial A¤airs; julia.lendvai@ec.europa.eu zEuropean Commission, DG Economic and Financial A¤airs; rafal.raciborski@ec.europa.eu |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=CEF2012&paper_id=293 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
