The Changing Structure of Government Spending

Moro, Alessio and Rachedi, Omar (2018): The Changing Structure of Government Spending.

Abstract

We document that advanced economies experience a secular increase in the share of purchases from the private sector in total government spending, implying that over time governments purchase relatively more private-sector goods, and rely less on own production of value added. We build a calibrated general equilibrium model to show that this secular process can be accounted for by investment-specific technological change. We then use the model to measure the effect of this secular process on the transmission of fiscal policy, and find that (i) it shifts the stimulative effects of government spending towards private economic activity and (ii) it dampens the response of hours - but not of output - to fiscal shocks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Government Gross Output, Fiscal Multiplier
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H1 - Structure and Scope of Government > H10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

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