Corresponding author: Roel Beetsma, University of Amsterdam, CEPR, CESifo and Tinbergen Institute, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands. Email: R.M.W.J.Beetsma@uva.nl.
The Effects of Government Purchases Shocks: Review and Estimates for the EU*
Version of Record online: 1 FEB 2011
© 2011 The Author(s). The Economic Journal © 2011 Royal Economic Society
The Economic Journal
Volume 121, Issue 550, pages F4–F32, February 2011
How to Cite
Beetsma, R. and Giuliodori, M. (2011), The Effects of Government Purchases Shocks: Review and Estimates for the EU. The Economic Journal, 121: F4–F32. doi: 10.1111/j.1468-0297.2010.02413.x
We are grateful to Luca Onorante and two anonymous referees for their helpful comments on an earlier version of this article.
- Issue online: 1 FEB 2011
- Version of Record online: 1 FEB 2011
In this article, we review the theoretical consequences of government purchases shocks for both closed and open economies, followed by a discussion of the empirical literature. Next, we provide our own estimates for the EU countries. We find that an increase in government purchases raises output, consumption and investment and reduces the trade balance. However, the stimulating effect is weaker and the trade balance reduction is larger for the more open EU economies, consistent with larger leakage effects. Further, we show that government purchases shocks in large EU economies have non-negligible consequences for economic activity in the main trading partners.