Do Government Purchases Affect Unemployment?

35 Pages Posted: 29 Dec 2017 Last revised: 7 Oct 2020

See all articles by Steinar Holden

Steinar Holden

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

Victoria Sparrman

Statistics Norway; Statistics Norway

Multiple version iconThere are 3 versions of this paper

Date Written: January 2018

Abstract

We estimate the effect of government purchases on unemployment in 20 OECD countries, for the period 1980–2007. An increase in government purchases, equal to 1 percent of GDP, is found to reduce unemployment by about 0.3 percentage points in the same year. The effect is greater and more persistent under less “employment‐friendly” labour‐market institutions, and it is greater and more persistent under a fixed exchange rate regime than under a floating regime. The effect is also greater in downturns than in booms. The effect on unemployment reflects a corresponding positive effect of increased government purchases on the employment‐to‐population rate.

Keywords: Fiscal policy, unemployment

Suggested Citation

Holden, Steinar and Sparrman, Victoria, Do Government Purchases Affect Unemployment? (January 2018). The Scandinavian Journal of Economics, Vol. 120, Issue 1, pp. 124-158, 2018, Available at SSRN: https://ssrn.com/abstract=3094132 or http://dx.doi.org/10.1111/sjoe.12214

Steinar Holden (Contact Author)

University of Oslo - Department of Economics ( email )

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HOME PAGE: http://folk.uio.no/~sholden/

Norges Bank ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Victoria Sparrman

Statistics Norway ( email )

0033 Oslo
Oslo
Norway

Statistics Norway ( email )

N-0033 Oslo
Norway

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