The determination of government expenditure for short-term forecasting and policy simulation models

Abstract This paper analyzes the way short-term forecasting and policy simulation models currently treat government expenditure and the extent to which available research is indicative of future developments for this sector. Emphasis is placed on the problems of, and the necessity for, developing endogenous equations for the various transfers and goods and services expenditures. Consideration is also given to the adaption of budget estimates to form endogenous or exogenous variables for the models, the distinctive problems of including state and local government sectors, and the interaction of the different parts of government expenditure with the rest of the model.