Department of Economics

University of Delaware

Working Paper #2007-13

Government Outlays, Economic Growth and Unemployment: A VAR Model

Siyan Wang and Burton A. Abrams

ABSTRACT

This paper examines the dynamic effects of government outlays on economic growth and the unemployment rate in the context of vector autoregression. We utilize data from 20 OECD countries over three recent decades. Our main conclusions are: (1) positive shocks to government outlays will slow down economic growth and raise the unemployment rate; (2) different types of government outlays have different effects on growth and unemployment, with transfers and subsidies having a larger effect than government purchases; (3) causality runs one-way from government outlays to economic growth and the unemployment rate; (4) the above results are not sensitive to how government outlays are financed.

JEL Code: C12; C32; H50; J64; O40

Keywords: government outlays; economic growth; unemployment rate; vector autoregression; Granger causality