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The Effects of Government Spending Over the Business Cycle: A Disaggregated Analysis for OECD and Non-OECD Countries

Author

Listed:
  • Panagiotis Konstantinou

    (AUEB)

  • Andromachi Partheniou

    (AUEB)

Abstract

Using a panel of OECD and non-OECD economies, we estimate the effects of three types of government expenditure (compensation of government employees, government use of goods and services and government investment) and social benefits on output, private consumption and investment. In OECD economies, we find that compensation of government employees and government investment generate significantly positive multipliers, whereas government use of goods and services does not. However, only the multipliers of compensation of government employees are found higher during recessions and only for horizons of up to two years ahead. In non-OECD economies, the multipliers of compensation of government employees and government investment are positive but smaller than those for the OECD group and they do not tend to differ in recessions and in expansions. We also provide evidence that social benefits generate increases of private consumption, for both OECD and non-OECD countries.

Suggested Citation

  • Panagiotis Konstantinou & Andromachi Partheniou, 2019. "The Effects of Government Spending Over the Business Cycle: A Disaggregated Analysis for OECD and Non-OECD Countries," DEOS Working Papers 1904, Athens University of Economics and Business.
    • Handle: RePEc:aue:wpaper:1904
    as

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    References listed on IDEAS

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    1. Fazzari Steven M. & Morley James & Panovska Irina, 2015. "State-dependent effects of fiscal policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(3), pages 285-315, June.
    2. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
    3. Reinhart, Carmen, 2002. "A Modern History of Exchange Rate Arrangements: The Country Histories, 1946-2001," MPRA Paper 13191, University Library of Munich, Germany.
    4. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
    5. Mr. Luc Laeven & Mr. Fabian Valencia, 2018. "Systemic Banking Crises Revisited," IMF Working Papers 2018/206, International Monetary Fund.
    6. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
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    Cited by:

    1. Thierry Betti & Thomas Coudert, 2022. "How harmful are cuts in public employment and wage in times of high unemployment?," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 247-277, January.
    2. Idowu, Obakemi Funsho & Okiri, Inyang John & Olarewaju, Hassan Ismail, 2020. "Revisiting Government Expenditure and Private Investment Nexus: An ARDL Approach," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(1), pages 181-192.

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    More about this item

    Keywords

    Fiscal Policy; Government Spending Multipliers; State-Dependent Multipliers; Local Projections; Non-Linear Models;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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