Can Government Spending Get America Working Again? An Empirical Investigation

15 Pages Posted: 18 Aug 2012

See all articles by Thomas Randolph Beard

Thomas Randolph Beard

Auburn University - Department of Economics

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Hyeongwoo Kim

Auburn University

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: November 2011

Abstract

In this paper, we examine the effectiveness of government spending on private-sector job growth. Rather than contemplate the average or typical effect of government stimulus on private-sector jobs, we divide the past fifty years of U.S. economic history into low-growth and high-growth periods. We then apply a non-linear, two-regime model to study whether the stimulus effects of government and private investment differ between recessionary and expansionary periods. During periods of economic sluggishness, we find that government spending has zero effect on private-sector job creation. This result is consistent with the apparent impotence of huge federal government spending increases aimed at reducing unemployment. In contrast, when it comes to job growth, expansions in private investment are effective in both regimes, but its efficacy is greatest during economic stagnation. By implication, policies that discourage private investment may have severe job-killing effects during economic downturns, since it is during the low growth periods that private investment is most effective at creating jobs. In light of these results and the evident failure of government stimulus to restore economic growth, job creation appears best served, under present economic conditions, by policies that encourage efficient private-sector investment such as tax and regulatory relief.

Keywords: stimulus, jobs, investment

JEL Classification: E12, E32, H50, H62, H69, O51

Suggested Citation

Beard, Thomas Randolph and Ford, George S. and Kim, Hyeongwoo and Spiwak, Lawrence J., Can Government Spending Get America Working Again? An Empirical Investigation (November 2011). Phoenix Center Policy Bulletin No. 31. Available at SSRN: https://ssrn.com/abstract=2131434

Thomas Randolph Beard

Auburn University - Department of Economics ( email )

415 W. Magnolia
Auburn, AL 36849-5242
United States

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Hyeongwoo Kim

Auburn University ( email )

Department of Economics
Auburn, AL 36849
United States
+1-334-844-2928 (Phone)

HOME PAGE: http://https://sites.google.com/site/hkimphd/

Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

HOME PAGE: http://www.phoenix-center.org

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