A functional classification analysis of government spending multipliers

Abstract

Using a panel of 33 OECD countries we estimate government spending multipliers for 11 different categories (functions) of spending: General Public Services, Defense, Public Order and Safety, Transport & Communication, Economic Services, Environment Protection, Housing and Community Amenities, Health, Education, Recreation, Culture and Religion, and Social Protection. We also account for variations in the state of the business cycle (recession vs expansion). Our results suggest that Public Services, Defense, Public Order, Transport &Communication, Health, Recreation and Education produce positive and high multipliers, whereas multipliers for Economic Services are negative, and multipliers for Environmental Protection, Housing and Social Protection are insignificant. In addition, multipliers for Public Services, Defense, Public Order, Transport & Communication, Health, Recreation and Education are higher in recession than in expansion.

Keywords: Government Spending Multipliers, Functional Classification, State-Dependent Multipliers, Local Projections, Smooth-Transition Models

JEL Classification: C33, E32, E62