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Does the Composition of Government Expenditure Matter for Long‐Run GDP Levels?
Author(s) -
Gemmell Norman,
Kneller Richard,
Sanz Ismael
Publication year - 2016
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12121
Subject(s) - economics , government expenditure , government spending , welfare , sample (material) , empirical evidence , public expenditure , short run , government (linguistics) , monetary economics , aggregate expenditure , macroeconomics , public finance , market economy , chromatography , philosophy , chemistry , linguistics , epistemology
We examine the long‐run GDP impacts of changes in total government expenditure and in the shares of different spending categories for a sample of OECD countries since the 1970s, taking account of methods of financing expenditure changes and possible endogenous relationships. We provide more systematic empirical evidence than available hitherto for OECD countries, obtaining strong evidence that reallocating total spending towards infrastructure and education is positive for long‐run output levels. Reallocating spending towards social welfare (and away from all other expenditure categories pro‐rata) may be associated with modest negative effects on output in the long run.