*Assistant Professor, University of Illinois at Chicago. This paper is part of my doctoral dissertation at The Ohio State University. I am grateful to Paul Evans (the chairman of my dissertation committee), Steve Cecchetti, Robert Driskill, Stephen McCafferty, Huston McCulloch, Frank C. Wykoff, and two anonymous referees of this journal for helpful comments. Errors and omissions remain my responsibility.
EMPLOYMENT AND OUTPUT EFFECTS OF GOVERNMENT SPENDING: IS GOVERNMENT SIZE IMPORTANT?
Article first published online: 28 SEP 2007
Volume 31, Issue 3, pages 354–369, July 1993
How to Cite
Karras, G. (1993), EMPLOYMENT AND OUTPUT EFFECTS OF GOVERNMENT SPENDING: IS GOVERNMENT SIZE IMPORTANT?. Economic Inquiry, 31: 354–369. doi: 10.1111/j.1465-7295.1993.tb01298.x
- Issue published online: 28 SEP 2007
- Article first published online: 28 SEP 2007
The efects of government spending on employment and output may depend on government size and the persistence of spending. The empirical results suggest that permanent (or persistent) changes in government consumption have a greater impact on output and employment than temporary (or cyclical) changes. This implies a negative wealth effect and reduces the stabilization potency of government spending. The findings also support the hypothesis that the output elasticity of government consumption is positive but declines with increases in government size. Using the estimated equations, I calculate the optimal government size for the representative country as around 20 percent of GDP.