3 Results
3.1 High-income and developing countries
To exploit the largest possible sample of our government consumption data, we begin with
a simple speciÖcation of a bivariate Panel VAR where Yn;t =
gn;t
yn;t!
; and where gn;t is
real government consumption and yn;t is real GDP. As a Örst cut at the data, we divided
the sample into high-income and developing countries.7 Figures 1 and 2 show the impulse