Government Spending Multiplier
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| Title | Government Spending Multiplier
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| Author | Wang Guojing and Tian Guoqiang |
| Organization | Shanghai University of Finance and Economics; Texas A&M University |
| Email | wgj1986@126.com |
| Key Words | Government Spending Multiplier; Government Consumption; Government Investment; DSGE Modeling |
| Abstract | This paper has investigated three important features on the estimated government spending multiplier within a dynamic stochastic general equilibrium framework. These three important features are Edgeworth complementarity between private consumption and government consumption, externalities produced by government investment, and endogenous fiscal policy rule. First, we work out a simple theoretic model to illustrate the differences between the government consumption multiplier and the government investment multiplier, and we point out that the severe bias would result from omitting endogenous fiscal policy rule. Then, based on this simple model, we use Bayesian method to estimate the structure parameters of a large-scale model which augmented with the three important features. By comparing models with different specifications, we find that the model which features the three important effects provides a better description of China’s economy. The estimated long-run government consumption multiplier and government investment multiplier are 0.7904 and 6.1130. The impulse response analysis shows a big difference between a government consumption shock’s impact and a government investment shock’s impact. |
| Serial Number | WP620 |
| Time | 2014-08-05 |
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