The Effects of Government Spending Over the Business Cycle: A Disaggregated Analysis for OECD and Non-OECD Countries

•We estimate the effects of compensation of government employees, government use of goods and services, government investment and social benefits using a panel of OECD and non-OECD countries.•Multipliers of compensation of government employees and government investment are significant for OECD economies and higher in recessions relative to expansions•For non-OECD economies, compensation of government employees and government investment produce positive multipliers, which do not vary over the business cycle.•Social benefits are found to have a positive effect on consumption, for both OECD and non-OECD countries. Using a panel of OECD and non-OECD economies, we estimate the effects of three types of government expenditure (compensation of government employees, government use of goods and services and government investment) and social benefits on output, private consumption and investment. In OECD economies, we find that compensation of government employees and government investment generate significantly positive multipliers, whereas government use of goods and services does not. However, only the multipliers of compensation of government employees are found higher during recessions and only for horizons of up to two years ahead. In non-OECD economies, the multipliers of compensation of government employees and government investment are positive but smaller than those for the OECD group and they do not tend to differ in recessions and in expansions. We also provide evidence that social benefits generate increases of private consumption, for both OECD and non-OECD countries.