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Journal of Economic Literature: Vol. 49 No. 3 (September 2011)

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Can Government Purchases Stimulate the Economy?

Article Citation

Ramey, Valerie A. 2011. "Can Government Purchases Stimulate the Economy?" Journal of Economic Literature, 49(3): 673-85.

DOI: 10.1257/jel.49.3.673

Abstract

This essay briefly reviews the state of knowledge about the government spending multiplier. Drawing on theoretical work, aggregate empirical estimates from the United States, as well as cross-locality estimates, I assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate: a temporary, deficit-financed increase in government purchases. I conclude that the multiplier for this type of spending is probably between 0.8 and 1.5. ( JEL E23, E62, H50)

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Ramey, Valerie A. (U CA, San Diego)

JEL Classifications

E23: Macroeconomics: Production
E62: Fiscal Policy
H50: National Government Expenditures and Related Policies: General


Journal of Economic Literature


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