Types Of Government Spending Research Articles

Fiscal multipliers in recession and expansion. An analysis for the Italian regions

This paper estimates the multipliers of two types of government spending in the 20 Italian administrative regions throughout 1960–2017, distinguishing between phases of expansion and recession. We derive regime- and region-specific multipliers through a nonlinear Bayesian heterogeneous panel threshold VAR model and provide a wide-ranging sensitivity analysis. We find that both government consumption and government investment multipliers are higher in recession than in expansion. In almost every region, government investment multipliers exceed unity in recession phases and are generally higher than their government consumption counterparts regardless of the business cycle. An exploratory analysis of the region-specific multipliers suggests that the difference between the region-specific multipliers in recession and expansion is positively associated with structural labour slack and negatively associated with trade openness. Factors related to the quality of local institutions, such as corruption and the relative size of the informal economy, also have a negative impact.

Tax Expenditures as a Rupture of Fiscal Democracy

Although each new administration claims to craft its own budget, in reality, spending plans always follow the choices made by its predecessors. To evaluate how much of a country's current budget is allocated to projects that do not need congressional approval or, more technically, to mandated expenditure programs, the fiscal democracy index was created. The Fiscal Democracy Index is calculated by subtracting mandatory spending and debt interest from total government revenues. The number reflects the amount of money left over from taxes that can be used for discretionary government programs. The ratio of the remaining public revenues to the total public revenues is the fiscal democracy indicator. Yet, tax expenditures may occur at any time during the fiscal year. Tax expenditures, on the other hand, are not always held to the same standards of transparency and accountability as other types of government spending. In this study, which aims to examine fiscal democracy in Turkey by deeming the impact of tax expenditures, we observed that Turkey's fiscal democracy index might be higher when considering tax expenditures. As a result, reducing tax expenditures will increase fiscal democracy.

Government expenditure structure, technological progress and economic growth

PurposeThis study examines the differences in the economic stimulus effects, transmission mechanisms, and output multipliers of government consumption, government traditional investment, and government science and technology investment.Design/methodology/approachThis study constructs and estimates a New Keynesian model of endogenous technological progress embedded in the research and development (R&D) and technology transfer sectors. Using Chinese macroeconomic time series data from 1996 to 2019, this study calibrates and estimates the model and analyzes the impulse response function and a counterfactual simulation of expenditure structure adjustment.FindingsThe results show that compared with the traditional dynamic stochastic general equilibrium (DSGE) model, the endogenous process of technological progress amplifies the impact of government consumption shock and traditional government investment shock on the macroeconomy, leading to greater economic cycle fluctuations. As government investment in science and technology has positive external spillover effects on firm R&D activities and the application of innovation achievements, it can promote more sustainable economic growth than government consumption and traditional investment in the long run.Originality/valueThis study constructs an extended New Keynesian model with different types of government spending, which includes endogenous technological progress within the R&D and technology transfer sectors, thereby linking fiscal policy, business cycle fluctuations and long-term economic growth. This model can study the macroeconomic impact of fiscal expenditure structure adjustment when fiscal expansion is limited. In the Bayesian estimation of model parameters, this study not only uses macroeconomic variables but also adds a sequence of private R&D investment.

The comparison of the impact of military and non-military government spending on GDP and consumption in Poland

Purpose – The purpose of the article is to compare the macroeconomic effects of military and non-military government spending on the Polish economy, which is particularly relevant in the context of the rapid rise in military spending after the outbreak of the war in Ukraine. Research method – The research is based on a new-Keynesian dynamic stochastic general equilibrium model estimated for the Polish economy. The model developed for the study takes into account differences between 3 types of government spending – military spending, non-military current spending and non-military investment. Results – On the one hand, the empirical results show that in the short and medium term, increasing military spending is a more effective method of stimulating GDP than rising non-military spending. On the other hand, the impulse response functions indicate that increasing non-military spending is a better tool for enhancing effective consumption. Originality / value / implications / recommendations – This is the first research exploring the macroeconomic effects of military spending in a CEE country, which is based on stochastic general equilibrium model accounting for heterogeneity of government spending. Assessing these effects at a time of unprecedented growth in military spending in Poland is an important added value of the study. The main implication of the research is to recommend increasing military spending to boost GDP, while rising non-military spending to stimulate effective consumption.

Sustainable urban rail funding: Insights from a century-long global dataset

In recent years, urban rail funding has become an increasing concern in some western cities. The underlying issues over ridership and funding has largely been driven by trends such as increasing teleworking and new transport modes like ridesharing, which are likely to further exacerbate funding issues in the aftermath of the worldwide health crisis. This paper contributes to the discussion through the examination of funding within urban rail transport, specifically the strengths and weaknesses of mechanisms that can be used to achieve sustainable, stable long-term funding. A unique, very long-term historical dataset of five large metros around the world was collected for this research, with the analysis based on evidence of actual practices, from a relatively rare organisational perspective. Key results include: i) appropriate fare-setting has been critical for long-term financial health, but is vulnerable to inflation effects and political interference; indexing is important but use of consumer prices has led to revenue erosion in real terms, since wage growth is typically higher. ii) How subsidies are generated can have varying impacts on funding stability and sustainability — dedicated taxes and cross-subsidies from road charges are typically better than direct grants as they are secured by legislation; they also reduce political changes and avoid competing claims from other types of government spending (health, education), as compared with grants. iii) Commercial revenue can be a valuable source for future growth, in light of increased resistance to taxation. Real estate-related revenues in particular can be substantial, as in Hong Kong and Tokyo, with historically faster growth than wages, while also capturing any further value increases from rail system improvements.

Efficiency Comparison of Pro-Growth Poverty Reduction Spending before and during the COVID-19 Pandemic: A Study of Regional Governments in Indonesia

During the COVID-19 pandemic, all regions in Indonesia have had negative economic growth. It also increased the poverty rate in the country. The government must allocate pro-growth and poverty reduction programs to maintain economic growth and simultaneously reduce poverty. This study aims to measure the relative efficiency of pro-growth poverty reduction spending of local governments in seven regions in Indonesia. This study compares the efficiency scores before and during the COVID-19 pandemic from 2015 to 2019 and 2020. The inputs are five types of government spending: education, health, economic, social protection, and infrastructure. The outputs are economic growth and poverty reduction. Data envelopment analysis with an output-oriented model and a return to scale variable approach is applied. The results show that the highest average local government efficiency score was in Kalimantan, with the lowest being in Sulawesi. The efficiency scores of local governments in the COVID-19 pandemic differ between regions: it remained stable in Kalimantan, increased in Java-Bali, Sumatra, and Sulawesi, and experienced a decline in Nusa Tenggara, Maluku, and Papua. The study concludes that economic growth and poverty reduction can simultaneously measure government efficiency. To be relatively efficient, local governments need to consider allocating pro-growth poverty reduction spending to improve the conditions of both outputs.

Regional multipliers across the Italian regions

AbstractThis paper estimates the multipliers of different types of government spending in the 20 Italian administrative regions throughout 1994–2016. We derive region‐specific multipliers through a Bayesian random effect panel vector autoregressive model. We find that the EU structural funds, compared to the other types of government spending, provide the largest and most pervasively significant GDP multipliers, whereas the effectiveness of nationally funded government investment and, especially, government consumption shocks is more limited. An exploratory analysis of the regional multipliers suggests that they are positively associated with the amount of unused resources and the size of the regional economy.

Moral Universalism and the Structure of Ideology

Throughout the Western world, people's policy views are correlated across domains in a strikingly similar fashion. This paper proposes that what partly explains the structure of ideology is moral universalism: the extent to which people's altruism and trust remain constant as social distance increases. In new large-scale multinational surveys, heterogeneity in universalism descriptively explains why the left and right both simultaneously support and oppose different types of government spending. Moreover, the left-right divide on topics such as redistribution strongly depends on whether people evaluate more or less universalist policies. Large-scale donation data provide additional evidence for the political left's universalism.

Revisiting the growth effects of fiscal policy: A Bayesian model averaging approach

Motivated by the mixed evidence in previous literature, we re-examine the effects of various types of government spending, taxes, and overall budget surplus/deficit, on economic growth. To address the model uncertainty issue that may have plagued earlier studies, we employ a Bayesian Model Averaging (BMA) approach. We use a panel data set for OECD countries for the 1990–2013 period, and allow for a wide range of other potential growth determinants. The results suggest a robust link between only some fiscal variables and economic growth in the short to medium run. On the spending side, productive public spending has a robust positive effect on growth. On the revenue side, we document a robust negative effect for the top corporate tax rate. Finally, our results suggest that a cyclically adjusted budget surplus has a robust positive effect on economic performance. Some, but limited, evidence points to effects of productive expenditure and of top income tax rates on medium-to-long-run growth. With regard to timing of short-to-medium run effects, our results show that most effects occur with a lag of two years.

Does Government Spending Affect Income Poverty? A Meta-regression Analysis

Summary This paper presents the results of a meta-regression analysis of the relationship between government spending and income poverty, with a focus on low- and middle-income countries. Through a comprehensive search and screening process, we identify a total of 19 cross-country econometric studies containing 169 estimates of this relationship. We find that the size and direction of the estimated relationship are affected by a range of factors, most notably the composition of the sample used for estimation, the control variables included in the regression model, and the type of government spending. Overall, we find no clear evidence that higher government spending has played a significant role in reducing income poverty in low- and middle-income countries. This is consistent with the view that fiscal policy plays a much more limited redistributive role in developing countries, in comparison with OECD countries. In addition, we find that the relationship between government spending and poverty is on average less negative for countries in Sub-Saharan Africa, and more negative for countries in Eastern Europe and Central Asia, compared to other regions. We also find that the relationship is less negative for government consumption spending, in comparison with other sectors. Finally, we find some evidence indicating the possibility of publication bias.

Revisiting the Growth Effects of Fiscal Policy: A Bayesian Model Averaging Approach

Motivated by the mixed evidence in previous literature, we reexamine the effects of various types of government spending and taxes, as well as overall budget surplus/deficit, on economic growth. To address the model uncertainty issue that may have plagued earlier studies we employ a Bayesian Model Averaging (BMA) approach. We use a panel data set for OECD countries for the 1990-2013 period, control for country and time specific effects, and allow for a wide range of other potential growth determinants. The results suggest a robust link between only some fiscal variables and economic growth. On the spending side, productive public spending has a robust positive effect on growth. On the revenue side, we document a robust negative effect for the top corporate tax rate, but, maybe surprisingly, not for any income tax variable. Finally, our results suggest that a budget surplus has a robust positive effect on economic performance. We also analyze the timing of effects and conclude that most effects occur with a lag of two years.

Vliv fiskální politiky na ekonomický růst v zemích OECD

The aim of the paper is to fi nd out what is the effect of different types of government spending and taxes on economic growth in developed economies. The analysis is performed on a sample of 27 OECD countries in the period 1997-2011. It is based on the neoclassic growth model extended with the level of human capital and fi scal variables. Those include particular types of government spending (according to the COFOG classifi cation) and taxes (according to the OECD classifi cation), and state budget defi cit. From a methodological point of view, panel data estimation is used. We support the view that only some types of government spending are growth-enhancing, and only if they are fi nanced through indirect taxes. However, the results show that only expenditure on defense, education and health, and general public services may be labeled as productive. In addition, we show that direct taxes, especially corporate taxes, negatively affect the growth, also in case they are used to fi nance productive spending.

Disaggregated approach to government spending shocks: a theoretical analysis

We calibrate a dynamic stochastic general equilibrium model that features a transmission mechanism with different types of government spending, while the literature usually treats government spending as a homogenous compound. In this regard, we manage to distinguish between different types of government spending (namely: government investment, government wage component consumption and non-wage component consumption) where each type of spending has a varied role in the economy. The government wage increase has the largest positive effect both on private consumption and output by affecting the economy through the government production. This is a natural consequence of government production being complementary to private consumption in our model. Other two government spending types, namely government non-wage consumption and government investment, also have positive effects on output, whereas their responses on (private) consumption are mostly negative. These results provide an alternative explanation for the wide range of multipliers existing in the literature as our setup enables them to produce different effects on macroeconomic variables.

SECTORAL COMPOSITION OF GOVERNMENT SPENDING AND MACROECONOMIC (IN)STABILITY

This article examines the quantitative interrelations between sectoral composition of public spending and equilibrium (in)determinacy in a two‐sector real business cycle model with positive productive externalities in investment. When government purchases of consumption and investment goods are set as constant fractions of their respective sectoral output, we show that the public‐consumption share plays no role in the model's local dynamics, and that a sufficiently high public‐investment share can stabilize the economy against endogenous belief‐driven cyclical fluctuations. When each type of government spending is postulated as a constant proportion of the economy's total output, we find that there exists a trade‐off between public consumption versus investment expenditures to yield saddle‐path stability and equilibrium uniqueness. (JEL E32, E62, O41)

Infrastructure Spending as Fiscal Stimulus: Assessing the Evidence

Transportation spending often plays a prominent role in government efforts to stimulate the economy during downturns. Yet, despite the frequent use of transportation spending as a form of fiscal stimulus, there is little known about its short- or medium-run effectiveness. Does it translate quickly into higher employment and economic activity or does it impact the economy only slowly over time? This paper reviews the empirical findings in the literature for the United States and other developed economies and compares the effects of transportation spending to those of other types of government spending.

Does investment in the health sector promote or inhibit economic growth?

Background: Is existing provision of health services in Europe affordable during the recession or could cuts damage economic growth? This debate centres on whether government spending has positive or negative effects on economic growth. In this study, we evaluate the economic effects of alternative types of government spending by estimating “fiscal multipliers” (the return on investment for each $1 dollar of government spending). Methods: Using cross-national fixed effects models covering 25 EU countries from 1995 to 2010, we quantified fiscal multipliers both before and during the recession that began in 2008. Results: We found that the multiplier for total government spending was 1.61 (95% CI: 1.37 to 1.86), but there was marked heterogeneity across types of spending. The fiscal multipliers ranged from � 9.8 for defence (95% CI: -16.7 to�3.0) to 4.3 for health (95% CI: 2.5 to 6.1). These differences appear to be explained by varying degrees of absorption of government spending into the domestic economy. Defence was linked to significantly greater trade deficits (β = �7.58, p=0.017), whereas health and education had no effect on trade deficits (peducation=0.62; phealth =0 .33). Conclusion: Our findings indicate that government spending on health may have short-term effects that make recovery more likely.

A disaggregated approach to the determination of government spending multipliers

This paper contributes to the debate on the effects of fiscal stimuli by showing that the impact of government expenditure depends on its composition. Government spending is not homogeneous and its effects on economic variables vary depending on its type. Comparing the effects of three types of government spending (investment, wage and non-wage components of consumption), it is concluded that government investment shocks are not the most effective spending shocks in boosting output, contrary to common opinion. Instead, the wage component government consumption has the biggest impact, whereas the non-wage component government consumption has the least. This variation stems mainly from the effects on (private) consumption.

Government spending, aggregate demand, and economic growth

This paper develops a simple Keynesian model of growth with endogenous technological change in which the long-run rate of growth of the economy is determined by both demand and supply forces to examine the effects of government fiscal policy. The paper first assumes that the government budget is balanced and shows that the long-run rate of growth of the economy is path-dependent, that fiscal policy affects the rate of growth of the economy in the short run as well as the long run, and that different types of government spending have different effects. It then introduces government deficits and debt into the analysis to show that even if one takes into account adverse effects of debt accumulation on long-term interest rates and investment, fiscal expansion can have positive growth effects.

Should Transportation Spending be included in a Stimulus Program? A Review of the Literature

Transportation spending often plays a prominent role in government efforts to stimulate the economy during downturns. Yet, despite the frequent use of transportation spending as a form of fiscal stimulus, there is little known about its short- or medium-run effectiveness. Does it translate quickly into higher employment and economic activity or does it impact the economy only slowly over time? This paper reviews the empirical findings in the literature for the United States and other developed economies and compares the effects of transportation spending to those of other types of government spending.

The effect of subsidising firms on voting behaviour: Evidence from Flemish elections

Despite an international consensus on the importance to limit State aid spending, large amounts of resources are still devoted to a wide variety of subsidies to firms. A sizable literature studies the relationship between general government spending and the proximity of elections, mostly documenting a positive link. In addition, other studies verify whether this strategy of increasing government expenditure pays off in terms of number of votes. We focus on one type of government spending that can be quite vulnerable to becoming ‘targeted spending’, i.e. subsidies to firms. We empirically test the relationship between the amount of subsidies granted to firms at the local level and local support for incumbent parties in the regional government. To that end, we make use of subsidy data derived from financial statements on 2008 and Flemish election results of 2004 and 2009. We find that the total amount of subsidies as well as subsidies per capita granted in 2008 positively correlate to support for incumbent parties 2009, meaning that voters appear to reward subsidy granting politicians.