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The Components of Government Spending over Business Cycle

Zipeng Zhou

    The business cycle properties of government spending differ across its components. This paper explores the cyclical movement of government spending components as a result of endogenous responses to exogenous private sector and government sector productivity shocks, and quantities the relative contributions of these shocks to component volatility. A framework is developed based on a two-sector neoclassical model where a public consumption good is provided through a government production process. Implementation lags and adjustment costs for government spending or its components are included to better capture the business cycle features of the U.S. government. General government and state and local government are analyzed separately to verify the robustness of the model. Simulating the model shows that the model does a good job of accounting for the business cycle dynamics of government spending components. It also reveals that different government spending components respond differently to private and government productivity shocks. In particular, state and local government spending components are affected more
by private productivity shocks.

(日期:2016-08-22 作者:Working Paper 来源:)