Government expenditures and economic growth: The supply and demand sides

Pak Hung MO*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    26 Citations (Scopus)


    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.

    Original languageEnglish
    Pages (from-to)497-522
    Number of pages26
    JournalFiscal Studies
    Issue number4
    Publication statusPublished - Dec 2007

    Scopus Subject Areas

    • Accounting
    • Finance
    • Economics and Econometrics


    Dive into the research topics of 'Government expenditures and economic growth: The supply and demand sides'. Together they form a unique fingerprint.

    Cite this