On the Effect of Different Patterns of Public Consumption Expenditures

The multiplier effects resulting from an isolated increase in the level of public consumption within different public branches are investigated and the policy implications are discussed. The article begins with a theoretical analysis which shows why and in which ways these multipliers can be expected to differ between public branches. Thereafter, an empirical investigation is given, based on simulations with an econometric model of the Swedish economy. In this model the public activities are divided into 13 different public branches. The effects of an increase in public consumption on employment, import s and private consumption are found to differ considerably depending on which branch of the public sector is expanded. Some implications for short run stabilization policy are discussed. The article ends with a special analysis of the implications for a medium term planning problem.