Industry Evidence on the Effects of Government Spending

By Christopher J. Nekarda, V. Ramey. 2010

121 citations recorded by the source corpus.

This paper investigates industry-level effects of government purchases in order to shed light on the transmission mechanism for government spending on the aggregate economy. We begin by highlighting the different theoretical predictions concerning the effects of government spending on industry labor market equilibrium. We then create a panel data set that matches output and labor variables to shifts in industry-specific government demand. The empirical results indicate that increases in government demand raise output and hours, but lower real product wages and productivity. Markups do not change as a result of government demand increases. The results are consistent with the neoclassical model of government spending, but they are not consistent with the New Keynesian model of the effects of government spending.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/665b48fdd799b25dc0a6ea8b0284d7092e8529b6

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In Economics and Econometrics

1. P. Surico
2. J. Cloyne
3. M. McLeay
4. Silvana Tenreyro
5. Haroon Mumtaz
6. Ben Shepherd
7. Yoto V. Yotov
8. Mario Larch

Citations in the corpus

• Government Spending, Political Cycles and the Cross Section of Stock Returns (2013, unknown): “…strategies focus on periods of significant “exogenous” expansion in US defense spending as in Ramey and Shapiro (1998).2 In a contemporaneous paper, Nekarda and Ramey (2011) use a measure (similar to ours) of industry-specific shifts in government demand based on NIPA inputoutput accounts to…”
• Household Debt and the Dynamic Effects of Income Tax Changes (2017, background): “In Romer and Romer (2010) and Cloyne (2013), the tax measure can be thought of as the change in an aggregate average tax rate.”
• Optimal Inflation and the Identification of the Phillips Curve (2019, methodology): “…j share of nominal shipments 242 McLeay and Tenreyro to government (in 1992), vj, from the data set of manufacturing industries constructed by Nekarda and Ramey (2011), and the city’s share of employment in that industry (in 1993), Eij=Ei, from the Census Bureau’s County Business…”
• Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions (2014, unknown): “ment data for several states over this period—giving us confidence in the prime military contract (24)Nekarda and Ramey (2011) use a similar approach to instrument for government purchases from particular industries.”