Government Spending and Durable Goods

66 Pages Posted: 26 Jan 2017

Multiple version iconThere are 2 versions of this paper

Date Written: December 14, 2016

Abstract

This paper shows that the fiscal multiplier for purchases of durable and investment goods is very small - much smaller than the multiplier for nondurable goods. Standard models predict small durables multipliers because private sector purchases of durable goods are highly intertemporally substitutable and therefore easily crowded out. Empirical estimates based on U.S. data confirm this result. In aggregate time series data output rises by about 50 cents less if the government purchases 1$ of durable rather than nondurable goods. At the industry level, spending on durable goods leads to smaller sectoral expansions than spending on nondurable goods. The findings of this paper suggest that infrastructure spending which is frequently part of fiscal stimulus packages is relatively ineffective at raising aggregate demand.

Keywords: durable goods, fiscal policy, government spending, fiscal multiplier

JEL Classification: E210, E320, E620, E630

Suggested Citation

Boehm, Christoph, Government Spending and Durable Goods (December 14, 2016). CESifo Working Paper Series No. 6244, Available at SSRN: https://ssrn.com/abstract=2906235

Christoph Boehm (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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