Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/145996
Authors: 
Gründler, Klaus
Sauerhammer, Sarah
Year of Publication: 
2016
Series/Report no.: 
Discussion Paper Series, Chair of Economic Order and Social Policy, Universität Würzburg 134
Abstract: 
This paper investigates the effects of government spending on key macroeconomic variables in Germany. It contributes to the ongoing debate on how to properly identify exogenous fiscal shocks in the data and on whether or not the government should intervene in the business cycle. Following Ramey (2011b), we include expectations held by consumers and firms into the standard VAR framework based on information from historical issues of the German political magazine Der Spiegel. The results suggest that government spending lowers gross domestic product, as it crowds out private consumption and investment. The findings also underscore the need to account for expectations, as failing to do so leads to significant misinterpretation of the effects of government spending. In fact, when neglecting anticipation effects, our results support the recent findings for Germany by pointing to a rather positive effect of government spending on GDP.
Subjects: 
Fiscal Policy
Government Spending
Vector Autoregression Model
Expectations
JEL: 
C32
D84
E32
E62
H31
H32
Document Type: 
Working Paper

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