101-2011-L12 - Econ101 ChangesinGovt Spending ChangesinTFP...

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Econ 101 Changes in Gov’t  Spending  Changes in TFP Distorting Taxation
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Reading n Today: n Williamson, Chapter 5, pages 164-184 n Robert Barro: Government Spending is no  Free Lunch (on the web) n European Vacation (on the web) n Next time: n Williamson, Chapter 8, pages 262-279
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Problem Set 4 n Will be posted today, due a week from  today
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An Increase in Government  Expenditures n In equilibrium:  n leisure decreases (labor supply increases),  n consumption and output increases n wages fall n Since wages are  procyclical  in the data,  fluctuations in G  cannot  be the source  of business cycles!
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Empirical Evidence n Main question: n How does consumption and wages  respond to an increase in government  spending? n Valerie Ramey (2008): n The effects of military expenditures n Largely unrelated to other economic factors
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Real Government Spending Per Capita
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The effects on GDP  
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The Effects on Consumption and Wages  
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GDP, Consumption, and Government  Expenditures during WWII
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