Public Spending and Private Services : Macroeconomic Effects

We study the consequences for employment and the production of tradable goods and nontradable services of tax-finances increases in public transfer payments and public consumption. While employment and the production of services usually fall, the consequences for unemployment and the welfare of employed and unemployed workers are less clear. Of particular importance is the rate by which marginal productivity changes in the household production sector and the market sector, as well as the efficiency of government production. In addition, the effects on the ex-post government budget balance and the current account of the balance of payments are also examined