NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Jinhui Bai

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Working Papers

July 2011Public Consumption Over the Business Cycle
with Ruediger Bachmann: w17230
What fraction of the business cycle volatility of government purchases is accounted for as endogenous reactions to overall macroeconomic conditions? We answer this question in the framework of a neoclassical representative household model where the provision of a public consumption good is decided upon endogenously and in a time-consistent fashion. A simple frictionless version of such a model with aggregate productivity as the sole driving force can explain almost all the volatility of U.S. non-defense government consumption expenditures. However, such a model fails to match other important features of the business cycle dynamics of public consumption, which comes out as not persistent enough and too synchronized with the cycle. We add implementation lags and implementation costs in the b...
August 2010Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality
with Ruediger Bachmann: w16247
This paper explores the implications of economic and political inequality for the business cycle comovement of government purchases. We set up and compute a heterogeneous-agent neoclassical growth model, where households value government purchases which are financed by income taxes. A key feature of the model is a wealth bias in the political aggregation process. When calibrated to U.S. wealth inequality and exposed to aggregate productivity shocks, such a model is able to generate milder procyclicality of government purchases than models with no political wealth bias. The degree of wealth bias that matches the observed mild procyclicality of government purchases in the data, is consistent with cross-sectional data on political participation.

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