American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Long-Run Effects of Government Spending
American Economic Review
(pp. 2376–2413)
Abstract
Military spending has large and persistent effects on output because it shifts the composition of public spending toward R&D. This boosts innovation and private investment in the medium term and increases productivity and GDP at longer horizons. Public R&D expenditure stimulates economic activities beyond the business cycle even when it is not associated with war spending. In contrast, the effects of public investment are shorter-lived, while public consumption has a modest impact at most horizons. We reach these conclusions using BVAR with long lags and 125 years of US data, including newly reconstructed series of government spending by main categories since 1890.Citation
Antolin-Diaz, Juan, and Paolo Surico. 2025. "The Long-Run Effects of Government Spending." American Economic Review 115 (7): 2376–2413. DOI: 10.1257/aer.20231278Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- E22 Investment; Capital; Intangible Capital; Capacity
- E23 Macroeconomics: Production
- E62 Fiscal Policy
- H50 National Government Expenditures and Related Policies: General
- H56 National Security and War
- O30 Innovation; Research and Development; Technological Change; Intellectual Property Rights: General