Do Government Purchases Affect Unemployment?

Holden, Steinar

doi:10.2139/ssrn.1855556

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Do Government Purchases Affect Unemployment?

University of Oslo, Department of Economics No. 17/2011

43 Pages Posted: 30 May 2012

See all articles by Steinar Holden

Steinar Holden

University of Oslo - Department of Economics; Norges Bank; CESifo (Center for Economic Studies and Ifo Institute)

There are 3 versions of this paper

Date Written: May 23, 2011

Abstract

We investigate empirically the effect of government purchases on unemployment in 20 OECD countries, for the period 1960-2007. Compared to earlier studies we use a data set with more variation in unemployment, and which allows for controlling for a host of factors that influence the effect of government purchases. We find that increased government purchases lead to lower unemployment; an increase equal to one percent of GDP reduces unemployment by 0.2 percentage point in the same year. The effect is greater in downturns than in booms, and also greater under a fixed exchange rate regime than under a floating regime.

Keywords: fiscal policy, unemployment, government purchases

JEL Classification: E62, H3

Suggested Citation: Suggested Citation

Holden, Steinar, Do Government Purchases Affect Unemployment? (May 23, 2011). University of Oslo, Department of Economics No. 17/2011, Available at SSRN: https://ssrn.com/abstract=1855556 or http://dx.doi.org/10.2139/ssrn.1855556