Does the Composition of Government Expenditure Matter for Long-run GDP Levels?
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Date
2014
Journal Title
Journal ISSN
Volume Title
Publisher
Te Herenga Waka—Victoria University of Wellington
Abstract
We examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for a sample of OECD countries since the 1970s, taking account of methods of financing expenditure changes and possible endogenous relationships. We provide more systematic empirical evidence than available hitherto for OECD countries. Our results provide strong evidence that reallocating total spending towards infrastructure and education would be positive for long-run income levels. Increasing the share of social welfare spending (and away from all others pro-rata) may be associated with, at most, modestly lower long-run GDP levels.
Description
Keywords
Government expenditure composition, Fiscal policy, GDP