Private Sector Effects of Government Expenditures on Nontraded Goods versus Direct Employment of Labor in a Small Open Economy

Abstract

In this paper an examination is made of the employment and private sector output effects of a tax-financed increase in government purchases of nontraded goods versus an increase in direct fonvernemnt employment. The investigation is made in the onctext of a small open economy model where the governement sector pay a higher real wage than does the private sector. The conclusions are that an increase in government puchases of nontraded goods will lead to higher private sector employment, higher toal employment, and highter production in the private sector than an increase in governement employment.