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The Impact of Government Expenditure on GDP, Employment and Private Investment a CGE Model Approach

Author

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  • Masoome Fouladi

    (Faculty of Economics, University of Tehran)

Abstract

The interaction of government expenditures with economic variables has been the subject of long debates between pros and cons in all major schools of Economics. According to Classical extremists, government expenditure has no effect on GDP due to complete crowding out between government expenditure and investment. This is vehemently rejected by radical Keynesians that assert a fiscal expansion policy affects GDP in full. In this paper we will study government expenditure effects on GDP and employment by a CGE model. It will be shown efficiency of government expenditure depends on kind of expenditure. The present paper divides government expenditures into two categories, consumption and investment expenditure. Also investment expenditure has been studied in five sectors: agricultural, gas and oil, construction, industry and mineral and service. The results confirm that government expenditure influences on economy in different ways, depends on types of costs. Increasing the government consumption expenditure causes reduction in production, employment and investment. Government investment expenditure has different effects on economy that depends on which area they will be spent..

Suggested Citation

  • Masoome Fouladi, 2010. "The Impact of Government Expenditure on GDP, Employment and Private Investment a CGE Model Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 15(3), pages 53-76, fall.
    • Handle: RePEc:eut:journl:v:15:y:2010:i:3:p:53
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    Cited by:

    1. Phindile Mdluli & Precious Mncayi & Thabang Mc Camel, 2019. "Examining Factors that Drive Government Spending in South Africa," Proceedings of International Academic Conferences 9912246, International Institute of Social and Economic Sciences.
    2. Ramesh CHANDRA DAS & Kamal RAY, 2019. "Long Run Relationships And Short Run Dynamics Among Unemployment And Demand Components: A Study On Sri Lanka, India And Bangladesh," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(1), pages 107-120, June.
    3. Ebrima K. Ceesay & Cecilia Biagie & Lamin Bittaye, 2022. "The Impact of General Government Final Consumption Expenditure- Economics Growth nexus for the Gambia," Energy and Environment Research, Canadian Center of Science and Education, vol. 12(2), pages 1-26, December.

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