Government expenditures and economic growth: The supply and demand sides

Pak Hung MO*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)497-522
Number of pages26
JournalFiscal Studies
Volume28
Issue number4
DOIs
Publication statusPublished - Dec 2007

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics and Econometrics

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