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Despite being a flexible tool that can address several macroeconomic issues, Dynamic Stochastic General Equilibrium (DSGE) models have been rarely used to analyse the interaction between monetary and fiscal policy until the post-financial crisis, leaving a gap in the analysis of how government consumption affects the transmission mechanism of monetary policy. This motivates this paper to analyse how government consumption affects the dynamics of a small open economy, once the former is included in a non-separable form to the utility function. To the best of the authors' knowledge, this issue has not been addressed by the literature, and the authors aim to do so in this paper.

A standard New Keynesian model for a small open economy is used to allow for the presence of non-separable government consumption in the utility function. The model is supported by panel regressions.

The inclusion of Government consumption dampens the transmission mechanism of monetary policy. The degree of openness dampens the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it. Empirical estimates for 35 OECD countries support the theoretical findings of the model.

The effect of government consumption on the transmission mechanism of MP has not been addressed in the literature. This paper contributes to the literature by addressing this issue.

• • The inclusion of Government consumption dampens the transmission mechanism of monetary policy.

• • The degree of openness alleviates the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it.

• • Empirical estimates for 35 OECD countries support the theoretical findings of the model.

• The inclusion of Government consumption dampens the transmission mechanism of monetary policy.

• The degree of openness alleviates the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it.

• Empirical estimates for 35 OECD countries support the theoretical findings of the model.

This study examines the differences in the economic stimulus effects, transmission mechanisms, and output multipliers of government consumption, government traditional investment, and government science and technology investment.

This study constructs and estimates a New Keynesian model of endogenous technological progress embedded in the research and development (R&D) and technology transfer sectors. Using Chinese macroeconomic time series data from 1996 to 2019, this study calibrates and estimates the model and analyzes the impulse response function and a counterfactual simulation of expenditure structure adjustment.

The results show that compared with the traditional dynamic stochastic general equilibrium (DSGE) model, the endogenous process of technological progress amplifies the impact of government consumption shock and traditional government investment shock on the macroeconomy, leading to greater economic cycle fluctuations. As government investment in science and technology has positive external spillover effects on firm R&D activities and the application of innovation achievements, it can promote more sustainable economic growth than government consumption and traditional investment in the long run.

This study constructs an extended New Keynesian model with different types of government spending, which includes endogenous technological progress within the R&D and technology transfer sectors, thereby linking fiscal policy, business cycle fluctuations and long-term economic growth. This model can study the macroeconomic impact of fiscal expenditure structure adjustment when fiscal expansion is limited. In the Bayesian estimation of model parameters, this study not only uses macroeconomic variables but also adds a sequence of private R&D investment.

The degree of development and the way to identify a fiscal shock matter in evaluating the effects of the fiscal policy. This paper contributes to the debate on the effects of a fiscal expansion on private consumption and the real effective exchange rate.

This paper uses a sign-restriction method to identify a fiscal shock in the panel structural VAR analysis in the context of both developed and developing countries.

The authors’ find that (1) private consumption increases in response to a positive government spending shock in both groups, yet such consumption effect is greater in developing than industrial countries; (2) the response of real effective exchange rate to the government spending shock varies across groups: it depreciates in developed countries and appreciates in developing countries; (3) trade balance improves in both groups.

This study sheds light on the differential effects of fiscal shock on consumption and real exchange rate in both developed and developing economies.

In Covid-19 pandemic era when most households' members have lost their jobs and incomes, the government assistance and programs in ensuring household consumption smoothing is very significant. The main objectives of this study are to analyze the impact of government expenditure and free maternal healthcare (FMHC) policy on household consumption expenditure in Ghana in both long run and short run.

They used the ARDL to estimate the impact of government expenditure on household consumption and Segmented Linear Regression to examine impact of FMHC policy household consumption using longitudinal data from 1967 to 2018.

The results revealed that government expenditure had a negative and statistically significant effect on household consumption expenditure suggesting that government expenditure crowed-out private consumption in Ghana. Also, it was observed that before the implementation of the FMHC policy, there was an increase household consumption expenditure, but after the introduction of the FMHC policy, the study household consumption expenditure decreases significantly suggesting that FMHC policy has strong association with household consumption in Ghana.

Due to limited data availability, this study did not assess the impact of the FMHC policy at the household or district level. Also, Ghana has introduced a free senior high school education policy in 2017 so further research could analyze the implications of these policies for household consumption in Ghana at the micro-level using different estimation technique such as the difference in difference.

The study suggests the need to increase public spending on basic social amenities and also extend the free maternal healthcare policy to all pregnant women especially those in the rural areas of Ghana as these have a greater impact on household consumption in Ghana. The findings from this study have important implications for household savings and interest rate in Ghana. The findings from this study also have important implications for both fiscal policy and healthcare policy in Ghana and other developing countries.

To the best of my knowledge this is the first empirical study to examine the effect of government expenditure and free maternal healthcare policy on household consumption in Ghana.

Most empirical studies on the government expenditure-economic growth nexus suggest a negative relationship between the size of the government expenditures and economic growth especially government consumption expenditures. Given these findings, the government should focus on development expenditures and reduce non-development expenditures for higher economic growth. However, the authors argue that this may not be the case, as government consumption expenditures along with better institutional quality promote growth via reduced corruption, reduction of political risks and good governance. The purpose of this study is to provide empirical evidences that both government consumption and development expenditure promote growth in the presence of better institutional quality.

This paper re-examines the impact of government expenditures on growth whilst controlling institutional factors for a sample of 30 developed and 91 developing countries from 1984 to 2017. Government expenditure is segregated into consumption and development expenditures.

The results are consistent with existing findings where government consumption expenditures have a negative effect on growth and government development expenditures contribute positively towards growth. However, when the authors conditioned government consumption expenditures with institutional variables, results suggest that in the presence of good institutions, both government consumption and development expenditures promote growth.

The findings in this paper suggest that in the presence of good institutions, government consumption expenditures will contribute positively towards growth. The results are relatively consistent for both developing and developed economies, which suggests the importance of institutional factors leading to a parallel movement towards long run growth path. In other words, long run economic growth is driven by a similar institutional environment.

Both developed and developing countries show similar reactions towards consumption and development expenditures. This indicates that despite the level of development, government expenditures do contribute positively towards growth especially in the presence of better-quality institutions.

The purpose of this paper is to investigate the effect of macroeconomic factors in income growth, as defined by IS‐LM, and the relation between these factors and economic cycles. More precisely, the paper aims to investigate how the demand and supply factors affect income growth, while the relation between these factors and economic cycles is also examined.

The sample under examination is the annual US data for 1928‐2007, using the official data as released in the US Bureau of Economic Analysis, while for the crises the used data have been provided by the National Bureau of Economic Research, Graduate Center of the City University of New York. The Business Cycles were examined, using the methodology developed by the National Bureau of Economic Research, Graduate Center of the City University of New York.

The research findings imply that government consumption expenditure growth is the most important factor that affects Gross Domestic Product growth positively. A change of 10 percent in Government consumption leads to 1.65 percent Gross Domestic Product growth. Also, the duration of crises is affected by lowering interest rates, while being also affected by government and personal consumption. Overall, the empirical findings of the study indicate that the role of private investments for Gross Domestic Product growth may be overrated among policy makers, given the low contribution of this factor to Gross Domestic Product growth.

The model used has some limitations. First, it does not examine the effect of a policy over Gross Domestic Product growth in longer time‐spans. Second, it does not investigate factor inter‐reactions. It could also be argued that other factors that would stimulate growth or affect crisis are not accounted for, such as wars, tax policies, international trade and population growth. Finally, the model investigates only the US economy; therefore, it could be argued that the findings may not coincide with findings from other economies.

The paper contributes to the economics literature by adding a further insight into the possible mix of policy that could be followed by regulatory authorities and governments for both the boost of economy and the finalization of economic crises.

This study aims to elucidate the dynamics of monetary and fiscal policy interactions in Brazil, focusing on the impacts of positive shocks in government consumption and interest rates. By comparing rational and behavioral agent responses, it clarifies how these frameworks influence gross domestic product (GDP), inflation, private and government consumption and nominal interest rates.

The study employs a new Keynesian dynamic stochastic general equilibrium (DSGE) model with Bayesian estimation from 2000Q1 to 2022Q4, capturing rational and behavioral behaviors with adjustments for Brazilian economic idiosyncrasies. Impulse response functions (IRF) assess the dynamic effects of policy shocks, providing a comparative analysis of the two frameworks.

Behavioral agents show greater initial sensitivity to policy shocks, causing more pronounced fluctuations in GDP, inflation and private consumption compared to rational agents. Over time, the behavioral approach leads to a more robust recovery, while the rational approach results in a quicker return to equilibrium but less pronounced long-term recovery. The study also finds fiscal policy can partially offset the negative impacts of monetary tightening, with a more delayed effect in the behavioral model.

This paper provides insights into the interplay between monetary and fiscal policies under different agent expectations, emphasizing the importance of incorporating behavioral elements into macroeconomic models to better capture policy dynamics in emerging markets.

Government spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in real exchange rate while neo-Keynesians claimed that government spending appreciates real exchange rate. Hence, the main purpose of this paper is to examine the effect of government spending shock and its components' shocks, namely government consumption and government investment on real exchange rate over the period 2001Q1–2016Q1 for Ethiopia.

To examine the effects of government spending shocks on real exchange rate, Jordà's (2005) local projection method is employed in this study. The exogenous shocks, however, are identified recursively in a vector autoregressive model.

The impulse responses show that government spending shock leads to a statistically significant appreciation of real exchange rate in Ethiopia. This evidence supports the neo-Keynesian school of thought who predicts an appreciation of real exchange rate from a rise in government spending. While government investment shock depreciates real exchange rate on impact insignificantly, government consumption shock appreciates real exchange rate in this small open economy.

This research contributes to the scarce literature on the effect of fiscal policy shock on real exchange rate in small open economies like Ethiopia.

This study is the first attempt to analyze the effectiveness of recent two major tax policies, the reductions in personal and corporate income taxes and a rise in indirect tax and their combine, under both balanced and unbalanced budget conditions, on the economy and social aspects of Malaysia.

This study uses a computable general equilibrium model to investigate the impacts of all simulation scenarios on the key macro and micro indicators. Further, based on the 2012 Malaysia Household Income and Expenditure Survey, it uses a micro-data with a significant number of households (over 56,000 individuals) to analyze the impacts of tax policies on poverty and income inequality of Malaysian.

Simulation results show that, under the balanced budget condition, personal and corporate income tax reductions increase economic growth, household consumption, and investment, while the rise in indirect tax has adverse impacts on these variables. However, in the unbalanced budget condition, all tax policies, except indirect tax policy, reduce real GDP and investment in the economy and the indirect tax policy has insignificant impacts on all indicators. All policy reforms reallocate resources, especially labor, in the economy. In both budget conditions, the reductions in corporate and personal income taxes, particularly the corporate income tax, decrease poverty level of Malaysian households. Results also indicate that both tax policies are unable to influence income inequality in Malaysia.

This study recommends that the government can increase its revenue by increasing indirect taxes as it does not have any impact on household welfare. In order to increase government revenues, initial increases in personal and corporate income taxes are suggested as they may have small negative impacts on the economy and welfare of households.

One of the significant features of this paper is that it examines both expansionary and contractionary fiscal policies in a country that government budget depends on oil exports. Since the literature on this subject is limited, particularly in the Malaysian context, the authors used Malaysia as a case to show how tax reform policies affect the economy and poverty level of such countries. Distinguishing the Malaysian households into 10 deciles and analyzing the distributional impacts of tax policies on these categories are the most significant contributions of this study.

The management of external debt among highly indebted poor countries (HIPCs) in Africa still remains a challenge despite numerous packages and attempts to ameliorate the consequences of such odious debt. The purpose of this paper is to establish the factors that contribute to the growth rate of external debt and how these factors respond to shocks to external debt growth rate in Africa.

Data were obtained from 24 African countries and analyzed using a panel vector autoregression estimation methodology.

The study found that external debt growth rates respond positively to unit shock or changes in government investment spending, consumption spending, and domestic borrowings over a long period of time. In the medium term, external debt growth rates respond negatively to shocks in tax revenue, inflation, and output growth rates. The paper also provides empirical support that external debt may be consumed rather than invested among HIPCs in Africa.

The findings of this paper are limited to only HIPCs in Africa.

This study has some few debilitating implications for external debt management among HIPCs in Africa. First, the paper suggests that debt repayment may be a problem. This is largely because external debt is consumed rather than invested. External debt sustainability needs a holistic approach in less developed countries. The findings place much emphasis on improvements in gross domestic product and tax revenues as the principal routes out of the debt doldrums. However, this option must be exploited with great caution as there is ample evidence that these poor countries increase their external borrowing capacities with improvements in economic outlook.

This paper fills a research gap that identifies specific components of government deficit budgets that may be contributing to the growth rate of external debts among HIPCs.