Code and Data for "The Long-Run Effects of Government Spending" by J. Antolin-Diaz and P. Surico

Military spending has large and persistent effects on aggregate output because it shifts the composition of public spending towards R&D. This boosts innovation and private investment in the medium-term, and increases productivity, GDP and consumption at longer horizons. Public R&D expenditure stimulates economic activities beyond the business-cycle even when it is not associated with war spending. In contrast, the effects of public investment are shorter-lived while public consumption has a modest impact at most horizons. We reach these conclusions using Bayesian Vector Auto Regressions (BVAR) with long lags and 125 years of U.S. quarterly data, including newly reconstructed time series of government spending broken down by its main categories since 1890.