Abstract

http://ssrn.com/abstract=1475560
 
 

References (17)



 
 

Citations (45)



 


 



Macroeconomic Effects from Government Purchases and Taxes


Robert J. Barro


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Charles Redlick


Harvard University - Department of Economics

September 2009

NBER Working Paper No. w15369

Abstract:     
For U.S. annual data that include WWII, the estimated multiplier for temporary defense spending is 0.4-0.5 contemporaneously and 0.6-0.7 over two years. If the change in defense spending is “permanent” (gauged by Ramey’s defense-news variable), the multipliers are higher by 0.1-0.2. The estimated multipliers are all significantly less than one and apply for given average marginal income-tax rates. We cannot estimate reliable multipliers for non-defense purchases because of the lack of good instruments. Since the defense-spending multipliers are less than one, greater spending crowds out other components of GDP, mainly investment, but also non-defense government purchases and net exports. Consumer expenditure on non-durables and services has only a small response. In a post-1950 sample, increases in average marginal income-tax rates (measured by a newly constructed time series) have significantly negative effects on GDP. When interpreted as a tax multiplier, the magnitude is around 1.1. When we hold constant marginal tax rates, we find no statistically significant effects on GDP from changes in federal tax revenue (using the Romer-Romer exogenous federal tax-revenue change as an instrument). In contrast, with revenue held constant, increases in marginal tax rates still have a statistically significant negative effect on GDP. Therefore, tax changes seem to affect GDP mainly through substitution effects, rather than wealth effects. The combination of the estimated spending and tax multipliers implies that balanced-budget multipliers for defense spending are negative.

Number of Pages in PDF File: 62

working papers series


Download This Paper

Date posted: September 21, 2009  

Suggested Citation

Barro, Robert J. and Redlick, Charles, Macroeconomic Effects from Government Purchases and Taxes (September 2009). NBER Working Paper No. w15369. Available at SSRN: http://ssrn.com/abstract=1475560

Contact Information

Robert J. Barro (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-495-3203 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Charles Redlick
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 407
Downloads: 73
Download Rank: 111,078
References:  17
Citations:  45

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.250 seconds