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Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 1678:
Trend Growth and the Dynamic Effects of Government Spending

Mewael F. Tesfaselassie

Abstract: The paper studies the macroeconomic effects of government spending shocks in an economy characterized by positive trend growth. It shows that the lower is the trend growth rate the less inflationary are government spending shocks and vice versa. Moreover, on impact output is higher but exhibits less persistence the lower is trend growth, an effect that also characterizes consumption and the fiscal multiplier given that consumption and labor are somewhat complementary

Keywords: trend growth, government spending, fiscal multiplier; (follow links to similar papers)

JEL-Codes: E21,; E62,; H31; (follow links to similar papers)

23 pages, January 2011

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