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Output Effects of Government Purchases

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  • Barro, Robert J

Abstract

Because of a small direct negative effect on private spending, temporary variations in government purchases as in wartime, would have a strong positive effect on aggregate demand. Intertemporal substitution effects would direct work and production toward these periods where output was valued unusually highly. Defense purchases are divided empirically into "permanent" and "temporary" components by considering the role of (temporary) wars. Shifts in non-defense purchases are mostly permanent. Empirical results verify a strong expansionary effect on output of temporary purchases, but contradict some more specific expectational propositions.
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Suggested Citation

  • Barro, Robert J, 1981. "Output Effects of Government Purchases," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1086-1121, December.
    • Handle: RePEc:ucp:jpolec:v:89:y:1981:i:6:p:1086-1121
    DOI: 10.1086/261024
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    1. Robert J. Barro & Mark Rush, 1980. "Unanticipated Money and Economic Activity," NBER Chapters, in: Rational Expectations and Economic Policy, pages 23-73, National Bureau of Economic Research, Inc.
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    4. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1113-1144, December.
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