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  • Expansionary versus contractionary government spending

    Author(s)
    Makin, Anthony J
    Griffith University Author(s)
    Makin, Tony J.
    Year published
    2015
    Metadata
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    Abstract
    This article theoretically examines the impact of different forms of government spending on national income in a financially open economy with a significant net international investment position the central bank of which sets domestic interest rates to target inflation. It shows that whether government spending is expansionary or contractionary ultimately depends on the productivity of that expenditure, a result that has major implications for the efficacy of fiscal policy deployed for either stimulus or austerity reasons. The key prediction of the model is that public consumption and unproductive public investment are ...
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    This article theoretically examines the impact of different forms of government spending on national income in a financially open economy with a significant net international investment position the central bank of which sets domestic interest rates to target inflation. It shows that whether government spending is expansionary or contractionary ultimately depends on the productivity of that expenditure, a result that has major implications for the efficacy of fiscal policy deployed for either stimulus or austerity reasons. The key prediction of the model is that public consumption and unproductive public investment are procyclical, whereas only productive public investment is countercyclical. (JEL F41)
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    Journal Title
    Contemporary Economic Policy
    DOI
    https://doi.org/10.1111/coep.12051
    Subject
    Applied economics
    Policy and administration
    Policy and administration not elsewhere classified
    Publication URI
    http://hdl.handle.net/10072/64081
    Collection
    • Journal articles

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