## Public Spending Management and Macroeconomic Interdependence

_IMF Working Papers, June 1, 2004_

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## Bibliographic details
- Authors: Giovanni Ganelli
- Published: June 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451852646.001

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### Summary and key findings
- This paper studies, in the context of a New Open Economy Macroeconomics (NOEM) model, the effects of "public competition policies" aimed at improving the efficiency of public spending.
- Such measures are modeled as an increase in the price elasticity of public consumption.
- The paper finds that public competition policies significantly affect macroeconomic interdependence across countries.
- Following a domestic fiscal expansion, an higher public price elasticity increases the substitutability between goods purchased by the domestic and the foreign governments.
- The same exchange rate variation can therefore sustain larger shifts in relative demand for goods.
- The expenditure-switching effect is magnified, implying a larger change in relative output.
- In welfare terms, countries with a larger government sector have an incentive to promote public competition policies.

### Model and mechanisms
- Framework: New Open Economy Macroeconomics (NOEM) model.
- Policy representation: Public competition policies are represented as an increase in the price elasticity of public consumption.
- Transmission channels highlighted:
  - Increased substitutability between domestically and foreign-purchased government goods.
  - Exchange rate variations sustain larger shifts in relative demand for goods.
  - Magnified expenditure-switching effect leading to larger changes in relative output.

### Policy implications and welfare
- Public competition policies materially alter macroeconomic interdependence across countries.
- Countries with a larger government sector gain greater welfare incentives to adopt public competition policies.

### Metadata and classification (as provided)
- Subject: Consumption, Exchange rates, Expenditure, External position, Foreign assets, Foreign exchange, National accounts, Private consumption
- Keywords: Consumption, consumption index, efficiency-enhancing measure, Euler equation, exchange rate, Exchange rates, expenditure-switching effect, Foreign assets, Global, government spending, macroeconomic interdependence, money demand equation, NOEM, NOEM model, Private consumption, Public competition policies, utility function, WP
- Pages: 22
- Volume: 2004
- Issue: 102
- Series: Working Paper No. 2004/102
- DOI: https://doi.org/10.5089/9781451852646.001
- Stock No: WPIEA1022004
- ISBN: 9781451852646
- ISSN: 1018-5941

*Public Spending Management and Macroeconomic Interdependence — Giovanni Ganelli, June 1, 2004 (IMF Working Papers).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/public-spending-management-and-macroeconomic-interdependence-17411_