Do government purchases affect unemployment?

Published in

Memorandum from Department of Economics, University of Oslo, No 17/2011

CESifo Working Paper No. 3482, 2011

Abstract

We investigate empirically the effect of government purchases on unemployment in 20 OECD countries, for the period 1960-2007. Compared to earlier studies we use a data set with more variation in unemployment, and which allows for controlling for a host of factors that influence the effect of government purchases. We find that increased government purchases lead to lower unemployment; an increase equal to one percent of GDP reduces unemployment by 0.2 percentage point in the same year. The effect is greater in downturns than in booms, and also greater under a fixed exchange rate regime than under a floating regime.

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By Steinar Holden and Victoria Sparrman
Published Mar. 23, 2015 11:20 AM - Last modified Aug. 6, 2021 9:43 AM