Does the Composition of Government Expenditure Matter for Long-Run GDP Levels?

Victoria University of Wellington Public Finance Working Paper No. 10

40 Pages Posted: 23 Aug 2014

See all articles by Norman Gemmell

Norman Gemmell

Victoria University of Wellington - Victoria Business School

Richard Kneller

University of Nottingham

Ismael Sanz

Universidad Rey Juan Carlos

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2014

Abstract

We examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for a sample of OECD countries since the 1970s, taking account of methods of financing expenditure changes and possible endogenous relationships. We provide more systematic empirical evidence than available hitherto for OECD countries. Our results provide strong evidence that reallocating total spending towards infrastructure and education would be positive for long-run income levels. Increasing the share of social welfare spending (and away from all others pro-rata) may be associated with, at most, modestly lower long-run GDP levels.

Keywords: government expenditure composition, fiscal policy, GDP

JEL Classification: H50, O40

Suggested Citation

Gemmell, Norman and Kneller, Richard and Sanz, Ismael, Does the Composition of Government Expenditure Matter for Long-Run GDP Levels? (August 1, 2014). Victoria University of Wellington Public Finance Working Paper No. 10. Available at SSRN: https://ssrn.com/abstract=2484917 or http://dx.doi.org/10.2139/ssrn.2484917

Norman Gemmell (Contact Author)

Victoria University of Wellington - Victoria Business School ( email )

PO Box 600
Wellington 6140
New Zealand

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Ismael Sanz

Universidad Rey Juan Carlos ( email )

Calle Tulipán, s/n
Madrid, Móstoles 28230
Spain

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