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Persistence in Government Spending Fluctuations: New Evidence on the Displacement Effect

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  • Goff, Brian

Abstract

In spite of A. T. Peacock and J. Wiseman's (1961) NBER study demonstrating the 'displacement effect,' simplistic theoretical and empirical distinctions between temporary and permanent spending are common. In this paper, impulse response functions from ARMA models, as well as J. H. Cochrane's (1988) nonparametric method, support Peacock and Wiseman's conclusion by showing (1) government spending in the aggregate displays strong persistence to temporary shocks, (2) simple decomposition methods intended to yield a 'temporary' spending series have a weak statistical foundation, and (3) persistence in spending has increased during this century. Also, as a basic 'fact' of government spending behavior, the displacement effect lends support to interest group and bureaucracy models of government spending growth. Copyright 1998 by Kluwer Academic Publishers

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  • Goff, Brian, 1998. "Persistence in Government Spending Fluctuations: New Evidence on the Displacement Effect," Public Choice, Springer, vol. 97(1-2), pages 141-157, October.
    • Handle: RePEc:kap:pubcho:v:97:y:1998:i:1-2:p:141-57
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    Cited by:

    1. Durevall, Dick & Henrekson, Magnus, 2011. "The futile quest for a grand explanation of long-run government expenditure," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 708-722, August.
    2. John Ashworth & Bruno Heyndels, 2001. "Political Fragmentation and the Evolution of National Tax Structures in the OECD," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 377-393, August.
    3. Winer, Stanley L. & Ferris, J. Stephen, 2008. "Searching for Keynesianism," European Journal of Political Economy, Elsevier, vol. 24(2), pages 294-316, June.
    4. Stanley L. Winer & J Stephen Ferris, 2003. "Searching for Keynes: An Essay on the Political Economy of Fiscal Policy, with Application to Canada, 1870-2000 - revised version," CESifo Working Paper Series 1016, CESifo.
    5. Julie Tam & Heather Kirkham, 2000. "Automatic Fiscal Stabilisers: Implications for New Zealand," Treasury Working Paper Series 01/10, New Zealand Treasury, revised 2001.
    6. Manuel Jaén-García, 2021. "Displacement Effect and Ratchet Effect: Testing of Two Alternative Hypotheses," SAGE Open, , vol. 11(1), pages 21582440211, March.
    7. Bateman, Fred & Taylor, Jason E., 2003. "The New Deal at war: alphabet agencies' expenditure patterns, 1940-1945," Explorations in Economic History, Elsevier, vol. 40(3), pages 251-277, July.
    8. Irandoust, Manuchehr, 2019. "Wagner on government spending and national income: A new look at an old relationship," Journal of Policy Modeling, Elsevier, vol. 41(4), pages 636-646.

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