Do Government Purchases Affect Unemployment?
University of Oslo, Department of Economics No. 17/2011
43 Pages Posted: 30 May 2012
Date Written: May 23, 2011
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