Macroeconomic Effects of Government Spending Shocks: New Narrative Evidence From Canada

Abstract

This paper examines the macroeconomic effects of government spending shocks in Canada for the period of 1949 - 2012. We use the narrative record, mostly the budget speech, to identify the size, timing, and principal motivation for all planned major government spending changes. To achieve identification, we consider those changes that are unrelated to the contemporaneous movements in the economy. The estimation, using our newly constructed data series on news of future government spending changes or the government spending shocks, shows that the government spending multiplier for Canada ranges from 0:91 to 1:52.

Keywords: Government Spending Shocks, Government Spending Multiplier, Narrative Accounts, Canada

JEL Classification: E62, H3