Abstract
This paper analyzes the dynamic impact of discretionary government consumption purchases on private demand. Using a panel of 132 countries from 1960 to 2008, we find that while discretionary changes in government consumption lead to crowding-in effects in the short run, crowding-out effects take over in the medium run. In addition, we also find that both short-term crowding-in and medium-term crowding out effects are amplified once we control for periods of crisis.
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