Cyclical Effects of the Composition of Government Purchases
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Summary:
This paper constructs a general equilibrium model with monopolistically competitive firms and endogenous markups where government spending consists of both consumption and investment goods. It is shown that when markups are countercyclical, increases in the share of investment goods in aggregate government expenditure entail a trade-off between greater long- run efficiency and higher short-run volatility. Estimates based on the model, calibrated to the postwar U.S. economy, show that the effects on output, employment, and welfare can be significant
Series:
Working Paper No. 1997/019
Subject:
Consumption Employment Expenditure Labor National accounts Production Public investment spending Total factor productivity
Frequency:
Annually
English
Publication Date:
February 1, 1997
ISBN/ISSN:
9781451843712/1018-5941
Stock No:
WPIEA0191997
Pages:
38
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