Macroeconomic Effects from Government Purchases and Taxes

by Robert Barro

One of the things I’ve been trying to do in my research is to calculate the effect, particularly on Gross Domestic Product, of government expenditure programs. The New Deal is part of my research, and it’s bigger than the other non-defense expenditure in terms of stimulus, but it’s not enough to really sort it out. So I don’t think you can reliably say what the effect is. The wartime effect you can estimate pretty precisely and the multiplier is clearly less than 1, even in World War II – in the order of 0.6, 0.7 something like that.