Cyclical Effects of the Composition of Government Purchases
February 1, 1997
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary
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
Subject: Consumption, Employment, Expenditure, Labor, National accounts, Production, Public investment spending, Total factor productivity
Keywords: aggregate demand, Consumption, crowding in, depreciation rate, elasticities of firm, Employment, equilibrium markup, expenditure of the firm, investment composite, investment demand, investment goods, investment path, investment share, Public investment spending, share of investment, steady state, Total factor productivity, WP
Pages:
38
Volume:
1997
DOI:
Issue:
019
Series:
Working Paper No. 1997/019
Stock No:
WPIEA0191997
ISBN:
9781451843712
ISSN:
1018-5941
