Government spending shifts lead to costly capital reallocation with macroeconomic consequences.
Changes in government spending can shift demand between sectors, affecting the economy. A study looked at how moving capital between sectors impacts the economy when government spending changes. By using a two-sector model, they found that different sectors respond differently to government spending changes. The study also analyzed the effects of military buildups on the economy and found that the behavior of key economic indicators aligns with predictions from a multi-sector economic model.