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Cyclical Effects of the Composition of Government Purchases

Author

Listed:
  • Mr. Jahangir Aziz
  • Mr. Luc E. Leruth

Abstract

This paper constructs a general equilibrium model with monopolistically competitive firms and endogenous markups where government spending consists of both consumption and investment goods. It is shown that when markups are countercyclical, increases in the share of investment goods in aggregate government expenditure entail a trade-off between greater long- run efficiency and higher short-run volatility. Estimates based on the model, calibrated to the postwar U.S. economy, show that the effects on output, employment, and welfare can be significant

Suggested Citation

  • Mr. Jahangir Aziz & Mr. Luc E. Leruth, 1997. "Cyclical Effects of the Composition of Government Purchases," IMF Working Papers 1997/019, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1997/019
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    Cited by:

    1. Salman Ahmad & Attiya Yasmin Javid, 2015. "Analysing the Price Cost Markup and Its Behaviour over the Business Cycles in Case of Manufacturing Industries of Pakistan," PIDE-Working Papers 2015:117, Pakistan Institute of Development Economics.

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