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Government Consumption Expenditures and the Current Account

Author: MICHELE CAVALLO
Published in PFM, Vol. 7 No. 1

This paper focuses on the effects on the current account of changes to two distinct components of government consumption expenditures, expenditure on goods and expenditure on hours worked. I find that changes to government expenditure on hours do not directly affect the current account and that their effect is considerably smaller – one order of magnitude – than the effect of changes to government expenditure on goods. These finding indicate that considering government consumption as entirely expenditure on goods can lead to overestimating its role in accounting for movements in the current account balance.

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