Rethinking the Relation between Government Spending and Economic Growth: A Composition Approach to Fiscal Policy Instruction for Principles Students

Publication: Journal of Economic Education

Volume: 39, No. 2

Issue: Spring 2008

Pages: 153-173

Author(s): Arthur H. Goldsmith

Address:

Arthur H. Goldsmith

Jackson T. Stephens Professor

Department of Economics

Washington and Lee University

Lexington, VA  24450

Phone: (540) 463-8970

Fax: (540) 463-8639

Email: GoldsmithA@wlu.edu

Title: Rethinking the Relation between Government Spending and Economic Growth: A Composition Approach to Fiscal Policy Instruction for Principles Students

Abstract: Unlike the standard textbook approach to government spending, the author divides government spending into two components:  public consumption and public investment.  He shows that the short-run effects of an increase in government spending are the same for both components but the long-run effects are dramatically different.