This thesis sets out to explain the relationship between fiscal spending and economic growth. The relationship is established using a panel vector autoregression model estimated by GMM, using GDP growth and government spending on a panel of 30 OECD countries. The model used is tested with slight variations in specification which are concluded to be important in the finalized results. By altering the specification used in the model this thesis produces relatively different sizes on the multiplier effect both in the short run and in the long run effect. The size of the multiplier effect produced by this thesis is varying between 0.437 on the low side and 2.224 on the high side depending on a few alterations in model specification. Similarly, the long run multiplier effect is measured as 1.873 on the low side and 8.263 on the high side. The mean duration of the multiplier effect is estimated to be approximately 3 years.